Arch Coal, the second-largest U.S. coal producer, will pay $3.4 billion in cash to acquire rival International Coal, a producer of highly sought after metallurgical coal, in a deal that values the latter at $14.60 a share, a 32% premium to where the shares closed on Friday.
Missouri-based Arch (ACI) said the deal will add to its earnings in 2012 and result in cost savings of $70 million to $80 million per year. West Virginia-based International Coal (ICO) will help Arch ship 11 million tons of metallurgical coal this year and 14 million tons per year over the next three years.
Prices for metallurgical coal, the grade of coal that is in high demand by Asian steelmakers, jumped 74% in the first quarter to $225 per ton, according to Bank of America Merrill Lynch. In the past several months, over $15 billion in mergers and acquisitions activity has taken place in U.S. the coal sector.
News of Arch acquiring International Coal prompted speculation about which U.S. coal producers could be next to be acquired with various Web sites reporting James River Coal (JRCC) and Patriot Coal (PCX) could be targets. Peabody Energy (BTU) is the largest U.S. coal producer.