Gloucester shares surge as Noble backs Yancoal bid

Gloucester shares surge as Noble backs Yancoal bid

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SYDNEY (Global Markets) - Shares in Gloucester Coal (GCL.AX) galloped nearly 30 percent higher on Friday after major shareholder Noble Group (NOBG.SI) said it will back a merger with China's Yanzhou Coal Mining Co Ltd (1171.HK) worth more than A$2 billion.

Analysts said on face value, the merged group would have an enterprise value of about A$6.8 billion, which included a heavy debt load.

Gloucester's 64 percent shareholder, Hong Kong-based Noble, said it would back the deal, which will leave it with a 14.8 percent stake in the merged group.

"Noble has informed the independent directors of Gloucester that, subject to approval by the Noble board of directors and in the absence of a superior proposal, it intends to vote its shareholding in favor of the merger proposal," Noble said in a statement.

Sydney-based Gloucester will be merged with Yancoal Australia Ltd., and Yanzhou will own 77 percent of the new company.

Gloucester shareholders will own the rest and receive A$700 million ($705.36 million) in cash, the equivalent of A$3.20 in per share, Yancoal said in a statement. Each Gloucester Coal shareholder will receive one share in the merged company.

Shareholders will also be entitled to participate in a pool of "contingent value rights" shares that protect the value of the merged company's shares. Under the terms of the deal, the shares will be protected at a value of $6.96 each.

This puts the total value of the deal at A$10.16 per share, or A$2.1 billion, a 45 percent premium to Gloucester's last trade before the deal was announced.

Gloucester shares surged 29 percent to a high of A$9.04, but that was well below the ostensible value of the deal, which analysts said reflected investors' uncertainty over the value of Yancoal's assets.

"You can't really value the deal without knowing the value of the Yancoal assets," said CLSA analyst James Stewart.

Yanzhou (1171.HK) shares were trading up 5.1 pct.

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Australia coal M&A graphic: r.reuters.com/neq65s

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FLOAT REQUIREMENT

The deal helps Yancoal meet a requirement to float 30 percent of its Australian assets by the end of 2012, a condition of its A$3.3 billion takeover of Felix Resources in 2009, but does not go far enough.

With Yancoal owning 77 percent of the merged group, it would need to dilute its stake down to 70 percent at some point later in 2012 to fully meet the requirement.

A lawyer not involved in the deal said he expected Australia's Foreign Investment Review Board to approve the deal.

"There's nothing that really leaps off the page as being of concern. It's not a supersensitive asset. There are no national security issues attached to it," said the lawyer, who declined to be named due to the sensitivity of the review process.

Noble Group (NOBG.SI) said it would make a one-time gain of about $200 million from the deal. Its shares rose 0.4 percent to S$1.195.

In a filing to the Singapore stock exchange Noble said it will receive about 130.9 million Yancoal Australia shares and A$420 million ($416 million) under the terms of the proposed merger.

Gloucester and Yancoal spokesmen said none of the parties involved were likely to release further details pending the outcome of an independent expert's report valuing the offer and other due diligence work expected to take until February.

The merger is conditional on the new entity obtaining a listing on the ASX, Gloucester said. It is also subject to approval by at least 75 percent of Gloucester shareholders.

Yancoal and Gloucester both have mines and projects in the Australian states of New South Wales and Queensland. Gloucester aims to expand production to 10 million tonnes a year by 2016, while Yancoal expects to produce 20 million tonnes a year by 2015.

That would put a combined group ahead of Whitehaven Coal (WHC.AX), which last week announced a $2.5 billion takeover of Aston Resources (AZT.AX) to create a company producing 25 million tonnes a year by 2016.

Since taking over Felix Resources in 2009, Yancoal has bought Syntech Resources for A$203 million and is about to complete the A$297 million acquisition of Premier Coal from Wesfarmers (WES.AX).

Those assets are not included in the deal.

It sought to buy Whitehaven Coal earlier this year but the two were unable to settle on a price.

(Reporting by James Regan, Victoria Thieberger; and Sonali Paul; Editing by Ed Davies)