Home > Mergers & Acquisitions > Korean Consortium Leads in Whitehaven Coal Takeover

Korean Consortium Leads in Whitehaven Coal Takeover

February 17, 2011

“In the latest scramble for Australia’s resources by Asian consumers worried about energy security, a Korean consortium has made an initial offer to buy Whitehaven Coal Ltd., a company valued at 3.5 billion Australian dollars (US$3.5 billion).

The non-binding offer by Korea Resources Corp., known as Kores, and Daewoo International Corp. underscores how volatility in commodity markets is driving consumers to bid more aggressively for high-quality reserves that can be shipped home. Coal prices recently surged to two-year highs after major mines around the world were hit by heavy flooding.

Whitehaven, which produces coking coal used in steelmaking and thermal coal used in power generation from five mines in New South Wales state, put itself up for sale last year in a move to capitalize on this wave of acquisition activity. Updating the market Feb. 7, Sydney-based Whitehaven said short-listed parties have been invited to complete more detailed due diligence and submit binding offers. It didn’t identify potential buyers, but the market expects companies from China, the U.S. and India to be involved.”

Source: Wall Street Journal, February 15 2011

Observations:

  • Whitehaven started an official takeover procedure, in which a list of potential bidders is invited to bid for the company based on information provided by the seller in a data room, last year. Initial offers were due of February 2nd, with binding offers expected over the coming month.
  • Driven by increasing coal prices, various Asian companies have bought Australian coal assets to secure access to raw materials over the past 18 months. China’s Yanzhou Coal Mining, Thailand’s Banpu Energy, and India’s Adani secured deals. China Shenhua (which owns assets near Whitehaven’s mines) and Indian ICVL are named as potential competing bidders for Whitehaven.

Implications:

  • The Korean Consortium will likely not be the only bidder in the takeover process. Typically multiple bidders are led to submit an offer in a takeover procedure in order to maximize the price paid for the company. Potential bidders without operating assets in Australia are not expected to be able to realize high synergies, making the bidder that is prepared to take most risk or that is most optimistic about the value ‘win’ the battle.
  • The buyer of Whitehaven might face regulatory obstacles from Australia’s Foreign Investment Review Board, which forced Yanzhou Coal Mining Co. to list the Australian assets in Australia to keep control over the domestic energy industry.

©2011 | Wilfred Visser | thebusinessofmining.com

Advertisements