Consol Energy Inc. (CNX) agreed to sell assets including five West Virginia thermal-coal mines to Murray Energy Corp. for about $850 million to help fund the expansion of natural gas production from shale deposits.
The deal will also give Consol about $184 million in future royalties and other payments, the Canonsburg, Pennsylvania-based company said today in a statement. Closely held Murray will take on $2.4 billion of liabilities as part of the deal, which is expected to close by year-end.
Consol first said in July it was looking at its corporate structure to increase the company’s share price. It considered splitting off the entire coal business, which accounts for most of its revenue, Chairman and Chief Executive Officer Brett Harvey said today in a conference call. Instead it decided to keep low-cost mines in Pennsylvania and Virginia and its Baltimore terminal to take advantage of rising export demand for thermal and metallurgical coal.
The mines being sold “do not support our growth strategy going forward,” Harvey said on the call. “I doesn’t fit with where we’re headed.”
Consol, which has operations in the Utica and Marcellus shale deposits in the U.S., said today it’s working to boost its gas output by 30 percent in 2015 and 2016. Shares of North American oil and gas producers have risen along with a surge in hydraulic fracturing, or fracking, to extract gas trapped in shale formations, while U.S. coal producers have suffered in the past two years from lower demand from power utilities.
Consol fell 0.5 percent to $37.95 at the close in New York.
“The announced transaction should address most of the concerns of investors who might have avoided Consol due to the negative aspects of its coal business, and may encourage a re-evaluation of the firm by investors seeking exposure to the Marcellus and Utica shales,” Paul Forward, an analyst at Stifel Nicolaus & Co. Inc. in Baltimore, said in a note.
The sale process started about six months ago and Consol made contact with about 28 potential buyers, including private-equity firms, Chief Financial Officer David Khani said on the call. It received “multiple” bids, he said.
Consol is selling the McElroy, Shoemaker, Robinson Run, Loveridge and Blacksville No. 2 mines, which produced 28.5 million tons of thermal coal in 2012. The transaction also includes Consol’s river and dock operations, which transported 19.3 million tons of coal and other commodities along the upper Ohio River system last year.
Consol is cutting its quarterly dividend by half to 6.25 cents a share and will record a pretax gain of about $1.3 billion in the fourth quarter because of the transaction. The deal will reduce the company’s 2014 earnings before interest, taxes, depreciation and amortization by about $213 million.
With an enterprise value of about $3.25 billion, the transaction is the U.S. largest coal-industry acquisition since Alpha Natural Resources Inc. bought Massey Energy Co. for $6.66 billion in 2011, according to data compiled by Bloomberg.
Murray Energy, the largest closely held U.S. coal producer, was founded by Chief Executive Officer Robert E. Murray in 1988 and currently operates eight mines that produce about 30 million tons of coal a year, according to its website. Goldman Sachs Group Inc. and Deutsche Bank AG will help Murray to finance the acquisition of the Consol assets, Khani said, without giving details.
Stifel Nicolaus and Bank of America Merrill Lynch were Consol’s financial advisers on the deal. Greenberg Traurig LLP, Wachtell, Lipton, Rosen & Katz, Steptoe & Johnson PLLC and Buchanan Ingersoll & Rooney PC acted as legal counsel.
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