Coal Miner Murray to Buy Controlling Stake in Foresight

Murray Energy Corp., the coal miner founded and run by outspoken industry champion Robert E. Murray, agreed to acquire control of a rival producer for $1.4 billion to add output in the U.S. Midwest and create one of the country’s largest suppliers of the commodity.

Closely held Murray Energy will buy 50 percent of St. Louis-based Foresight Energy LP, the companies said Sunday in a statement. While Foresight founder and majority shareholder Christopher Cline will see his stake shrink, he will remain a significant investor and stay on as a director.

The deal will give Murray Energy a bigger presence in the Illinois basin, a coal-mining region that’s a rare bright spot in an otherwise beleaguered and shrinking industry. The combination will create a producer with more than 9 billion tons of coal reserves. That’s more than any other U.S. supplier, according to data compiled by Bloomberg.

“In this extremely distressed coal marketplace, a coal-mining company must strive to be the lowest-cost producer in any sourcing region,” Murray, who founded his St. Clairsville, Ohio-based company in 1988, said in the statement. “Foresight Energy has continued to be the low-cost producer in the Illinois Basin, with a focus on safely producing high quality, high heat coal, strategically located near low-cost transportation.”

A fourth-generation miner, Murray, 75, is perhaps the most outspoken defender of a U.S. coal industry that’s stuck in its worst downturn in decades. The fuel his company sells to power plants is under pressure from cheap natural gas and tougher emissions standards. He’s predicted publicly on several occasions that at least five big U.S. coal producers will have to file for bankruptcy.

Consol Deal

That hasn’t deterred Murray -- who regularly blasts President Barack Obama’s administration for actions he views as anti-coal, and who says there’s no reason to believe coal prices will rebound anytime soon -- from making deals himself to expand his company.

Murray spent $3.25 billion to acquire the West Virginia coal operations of Consol Energy Inc. in December 2013. Murray has since said he plans to increase production at those mines and has been on the lookout for more acquisitions.

Industry analysts see the depressed state of U.S. coal as creating fertile ground for dealmaking. Suffering from flagging demand and high debt loads, the combined market capitalization of publicly traded U.S. coal companies has shrunk to $13.3 billion from $78 billion in 2011, according to data compiled by Bloomberg.

Low-Cost

“The current state of the industry favors consolidation (balance sheet permitting) as the synergies allow the coal industry to remain more competitive,” Lucas Pipes, an analyst at Brean Capital LLC in New York, said in an e-mail.

Murray is targeting coal mines and reserves that he thinks can be the lowest-cost supplier of the fuel to coal-fired power stations -- plants that he thinks are too important to be taken off the country’s electric grid and that are located in places where it’s too expensive to convert to natural gas.

“That same strategy,” he said in a December interview, ’’will carry me into the future.’’

Foresight sold shares in an initial public offering in June. The stock has declined 21 percent since then through Friday’s close. It was up 4.4 percent to $16.50 at 8:41 a.m. in New York trading.

Murray Energy will use cash on hand and debt to pay for Foresight, it said Monday in a separate statement. The company plans to secure a $1.6 billion loan facility, refinancing an existing loan, and sell about $860 million of bonds. Deutsche Bank AG and Goldman Sachs Group Inc. are arranging the debt financing. Both banks are also arranging new facilities with which Foresight will refinance existing loans.

Deutsche Bank was Murray Energy’s financial adviser on the acquisition and Kirkland & Ellis LLP was its legal counsel.

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