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China’s Coal Cos. Spark U.S. M&A Boom

Posted July 22, 2008

“In the next 12 months there will be an unprecedented amount of both domestic and cross-border mergers and acquisitions. U.S. reserves are undervalued relative to those in the rest of the world.” — Wilbur Ross, International Coal Group chairman

by Jason Simpkins

Baltimore — (TFN): The recent buyout of Alpha Natural Resources Inc. (ANR) by Cleveland Cliffs Inc. (CLF) could ignite more than $50 billion worth of M&A deals in the U.S. coal industry over the next few years as mainland China rushes to solve a major energy shortfall.

“In the next 12 months there will be an unprecedented amount of both domestic and cross-border mergers and acquisitions,” Wilbur Ross, chairman of International Coal Group Inc. (ICO), told Bloomberg News. “U.S. reserves are undervalued relative to those in the rest of the world.”

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Ross, the billionaire investor who helped consolidate the U.S. coal and steel industries, considers this the start of a round of mergers that will prove Cleveland-Cliffs prescient in its Alpha bid.

The top eight U.S. coal producers, which are worth more than $50 billion, are possible takeover targets for a country desperate for resources. And compared with China, American coal companies are bargains.

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China Shenhua Energy Co. (1088:Hong Kong), Asia’s biggest coal company is valued at $15.52 for every ton of coal it holds, compared to $2.11 a ton for Peabody Energy Corp. (BTU), and $1.76 for International Coal, Bloomberg reported.

At a point when the U.S. economy is slowing under the weight of a growing financial crisis, and spiking food-and-energy prices, escalating growth in the developing economies around the world has ignited a bull market for coal that analysts believe could last for at least 10 years. Read on to learn more.

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