Gloucester To Be Acquired By Yanzhou Coal For A$2.1 Bln - Update

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Australian miner Gloucester Coal Ltd. (GCL.AX) said Thursday it has agreed to be acquired by China-based Yanzhou Coal Mining Co. Ltd. for A$2.1 billion or $2.13 billion in cash and stock. Following the announcement, shares of Gloucester are currently gaining more than 21 percent on the Australian Securities Exchange.

The deal is conditional on the merged company obtaining a listing on the Australian stock exchange. Under the deal, Yancoal Australia Ltd., a wholly owned subsidiary of Yanzhou Coal, will acquire Gloucester in order to merge both companies' coal mines in New South Wales and Queensland. Yancoal will control 77 percent of the new company, while the remaining 23 percent will owned by Gloucester shareholders.

Gloucester shareholders will have the option to elect to receive either all ordinary shares in the merged company, or a combination of ordinary shares and Contingent Value Rights or CVR shares.

Gloucester shareholders will receive about A$3.204 cash per share, comprising a special dividend of about A$0.564 per share payable prior to the effective date of the merger, and a capital return of about A$2.64 per share payable six months after the merger.

Taking out the special dividend and capital reduction, the shares will be protected at a value of A$6.96 per share. In the event the value of the shares is below A$6.96 after 18 months, the CVR proposal will provide up to A$3.00 of protected value to Gloucester shareholders.

The deal values Gloucester at A$10.16 per share, comprising the A$3.20 cash payout and the A$6.96 protected value of the share component. The offer price represents a 44.5 percent premium to Gloucester's closing stock price of A$7.03 on December 19, the day prior to the stock being halted.

The merger requires the approval by Gloucester shareholders as well as Chinese and Australian authorities. Immediately on completion of the merger, Yancoal will contribute about $2.7 billion in U.S. dollar denominated debt with maturity dates in 2014, 2017 and 2018. The merged company will also have existing Gloucester Group debt, including A$700 million on account of the proposed special dividend and capital return.

The board of the new entity will be dominated by Yancoal nominees, comprising six nominees of Yanzhou and five independent directors that will be agreed between Gloucester and Yanzhou, with the chairman to be one of the nominees of Yanzhou.

Singapore-listed commodity trader Noble Group, Gloucester's largest shareholder, said it intends to vote its shareholding in favor of the proposed deal. Noble currently owns 64.5 percent of the ordinary shares in Gloucester.

Gloucester said it will engage an independent expert to assess the deal, while due diligence is continuing. The company expects these processes to be completed by late February.

The deal enables Yanzhou Coal Mining to expand overseas and also to list its Australian assets in that country. Under the terms of the company's 2009 purchase of another Australian coal miner Felix Resources, Yanzhou Coal is required to float at least 30 percent of its business in Australia on the local stock exchange by the end of 2012.

In Friday's regular trading on the Australian Securities Exchange, GCL.AX is trading at A$8.55, up A$1.52 or 21.62 percent on a volume of 4.29 million shares.

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