6 Firms on $3.3 Billion Proposed Canadian-U.S. Coal Deal

Julie Triedman

The American Lawyer

11-22-2010

In a deal that industry watchers say should trigger further consolidation in the coal industry, Tampa, Fla.-based Walter Energy Inc., a maker of coal for the steel industry, has offered to buy Vancouver, British Columbia-based Western Coal Corp. for $3.2 billion.

The deal is unusual, lawyers on the matter say, because of its sequencing. Rather than announcing an acquisition outright, the two companies announced an agreement to negotiate towards one. The nonbinding agreement states that they will talk exclusively with each other for 14 days with the intention of signing a deal at the end of that period.

Walter's offer of $11.50 per share of Western Coal represents a 59 percent premium over Western's 20-day average price on the Toronto Stock Exchange, Bloomberg reports. The combination, says a release from Western Coal, will create one of the world's largest publicly traded producers of metallurgical coal, with assets in Canada, the U.S. and the U.K.

The exclusivity agreement that was announced Thursday was prompted, lawyers say, by Walter's deal to buy a large stake -- 19.9 percent -- of Western Coal shares from London-based hedge fund Audley Capital Advisors. Since that all-cash agreement with Audley was signed and had to be reported to regulators, Walter and Western executives decided to come out ahead of the news and move quickly to announce that they were engaged in talks with an eye towards a deal.

Under the terms of the agreement, Walter will pay cash for 40 percent of Audley's stake in Western after the regulatory waiting period is over. Walter has agreed to purchase the rest of Audley's shares next year, either in conjunction with the Walter/Western deal or, failing that, in cash outright. If a definitive agreement between Walter and Westner is not reached, there is no penalty for either company, according to the announcements.

Walter is looking to longtime outside corporate counsel Peter Gordon at Simpson Thacher & Bartlett on the deal. Gordon brought in Canadian counsel -- Osler partner Emmanuel Pressman. The two have worked together in the past on other proposed deals for Walter, Gordon says.

The Simpson team also includes executive compensation partner Alvin Brown; corporate partner James Cross; tax partner Robert Holo; antitrust senior counsel Michael Naughton; and associates Aimee Adler, James Connor, Thomas Lamprecht and Austin Hill. In London, Simpson corporate partner Adam Signy is serving as Walter's U.K. counsel (Western Coal is listed on both the Toronto Stock Exchange and on the AIM market of the London Stock Exchange and has a number of U.K. subsidiaries).

The Osler team also includes antitrust partner Peter Franklyn and tax partner Steve Suarez. Managing the deal inhouse at Walter is Catherine Bona, vice president, interim general counsel and secretary.

Western Coal is looking to Goodmans, where Michael Partridge is leading the outside counsel team, which includes business partners Gesta Abols and Joel Schachter, tax partner Jon Northup, competition counsel Richard Annan and associate Ryan Done. Partridge says he has been representing Western Coal on major transactional matters since Goodman's client Cambrian Mining PLC, then a major shareholder in Western, merged with the company in 2009.

Paul, Weiss, Rifkind, Wharton & Garrison is providing U.S. counsel to Western on the deal. Corporate department chair Robert Schumer, corporate partner Matthew Abbott and Canadian practice head and capital markets co-head Edwin Maynard are working on the deal. The Vancouver-based company also has tapped regular U.K. corporate counsel Trowers & Hamlins and corporate partner Richard Hildebrand. Western Coal general counsel Keenan Hohol is handling matters inhouse.

Audley Capital has tapped Canada's Davies Ward Phillips & Vineberg, where corporate partners Vincent Mercier and Peter Hong are leading the outside legal team.

Walter and Western Coal aren't the only coal companies currently making moves. Reuters reported on Wednesday that Massey Energy Co., one of the largest coal producers in the U.S., was looking to make acquisitions. State-run Coal India Ltd., Reuters reports, also is interested in buying mines from Massey and Peabody Energy Corp., another U.S. coal producer.