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Arch (ARCH), CONSOL to Merge, Focus on Global Coal Market
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Arch Resources, Inc. (ARCH - Free Report) and CONSOL Energy Inc. (CEIX - Free Report) have entered into a definitive agreement to combine in an all-stock merger of equals to create Core Natural Resources, a North American natural resource company focused on the global market.
Core Natural Resources will bring together two strong operators in the coal space and offer high-quality, low-cost coals ranging from metallurgical to high calorific value thermal coals.
Arch and CONSOL’s Merger Agreement Terms
Per the terms of the agreement, unanimously approved by the boards of directors of both companies, Arch’s stockholders will receive a fixed exchange ratio of 1.326 shares of CONSOL common stock for each share. The value of the deal is projected to be $2.3 billion.
Arch’s stockholders will own 45% of Core Natural Resources and CONSOL’s stockholders will own 55% of Core Natural Resources on a fully diluted basis.
The merger is expected to close by the end of the first quarter of 2025, subject to approval by both companies' stockholders, regulatory approvals and the satisfaction of other customary closing conditions.
Benefits From the Merger of Arch and CONSOL
The merger of two of the best operators in the coal business will create a diversified coal producer catering to the requirements of global steel, industrial and power generation customers with a combined capacity of 12 million tones per annum (Mtpa) of Metallurgical Grade Coal and more than 25 Mtpa of High Calorific Value Thermal Coal.
Core Natural Resources will have strong coal export business with more than 25 Mtpa of Export Capacity via Ownership Interests in Two East Coast Terminals as well as strategic access to West Coast and Gulf of Mexico Ports.
The combined company will generate $110 Million to $140 Million of annual cost and operational synergies. The transaction is expected to be accretive to free cash flow for both Arch and CONSOL in the first full year following close.
Significance of This Merger in the Coal Industry
Coal used to be a primary source of fuel to provide energy across the globe, however, increasing emission concerns have significantly reduced usage of coal. This has seen a decline in the U.S. electricity generation as utilities operating in the United States are trying to achieve carbon neutrality in the power generation process. Coal-fired units are gradually becoming backup units for utility operators in case of emergency power requirements.
Amid such a dismal domestic market scenario, the rising demand from the global markets can still boost the prospects of the coal operators. In addition to electricity generation, coal is required in various industries as a source of energy, the most important among them being the steel industry.
The World Steel Association forecasts a rebound in global steel demand, rising 1.7% in 2024 to touch 1,793 metric tons (Mt) and further increasing by 1.2% in 2025 to reach 1,815 Mt. Steel production requires ample high-quality coal and nearly 70% of global steel production depends on it. With the continued recovery in steel demand, coal exports are expected to pick up and improve in the long run. Core Natural Resources will have high-quality metallurgical at its disposal and access to export terminals to meet the expected rising demand for high-quality coal in the global market.
Will This Merger Open Doors for More Consolidation
The U.S. coal industry is currently in a weak space as overall production volumes continue to drop. Per the U.S. Energy Information Administration’s (EIA) projection, coal production in the United States is expected to drop in 2024 and 2025. EIA projects U.S. coal production to decline 14% from 2023 levels to about 500 million short tons (MMst) in 2024 and register a decline of nearly 5% to 475 MMst in 2025 due to the expected reduction in coal usage in electricity production.
The bright prospects of this merger might encourage Peabody Energy (BTU - Free Report) to look for a new merger and further expand its operations. This Zacks Rank#1 (Strong Buy) company has both thermal and metallurgical coal operations and long-term coal supply contracts with few customers which assures a steady flow of revenues.
Price Performance
This announcement has been accepted well by the market, with Arch and CONSOL showing an pre-market gain of 0.60% and 0.48%, respectively. This merger news reversed the price performance of the companies with Arch and CONSOL’s shares declining 16% and 4.1%, respectively, in the last month.
Arch Resources, Inc. (ARCH - Free Report) and CONSOL Energy Inc. (CEIX - Free Report) have entered into a definitive agreement to combine in an all-stock merger of equals to create Core Natural Resources, a North American natural resource company focused on the global market.
Core Natural Resources will bring together two strong operators in the coal space and offer high-quality, low-cost coals ranging from metallurgical to high calorific value thermal coals.
Arch and CONSOL’s Merger Agreement Terms
Per the terms of the agreement, unanimously approved by the boards of directors of both companies, Arch’s stockholders will receive a fixed exchange ratio of 1.326 shares of CONSOL common stock for each share. The value of the deal is projected to be $2.3 billion.
Arch’s stockholders will own 45% of Core Natural Resources and CONSOL’s stockholders will own 55% of Core Natural Resources on a fully diluted basis.
The merger is expected to close by the end of the first quarter of 2025, subject to approval by both companies' stockholders, regulatory approvals and the satisfaction of other customary closing conditions.
Benefits From the Merger of Arch and CONSOL
The merger of two of the best operators in the coal business will create a diversified coal producer catering to the requirements of global steel, industrial and power generation customers with a combined capacity of 12 million tones per annum (Mtpa) of Metallurgical Grade Coal and more than 25 Mtpa of High Calorific Value Thermal Coal.
Core Natural Resources will have strong coal export business with more than 25 Mtpa of Export Capacity via Ownership Interests in Two East Coast Terminals as well as strategic access to West Coast and Gulf of Mexico Ports.
The combined company will generate $110 Million to $140 Million of annual cost and operational synergies. The transaction is expected to be accretive to free cash flow for both Arch and CONSOL in the first full year following close.
Significance of This Merger in the Coal Industry
Coal used to be a primary source of fuel to provide energy across the globe, however, increasing emission concerns have significantly reduced usage of coal. This has seen a decline in the U.S. electricity generation as utilities operating in the United States are trying to achieve carbon neutrality in the power generation process. Coal-fired units are gradually becoming backup units for utility operators in case of emergency power requirements.
Amid such a dismal domestic market scenario, the rising demand from the global markets can still boost the prospects of the coal operators. In addition to electricity generation, coal is required in various industries as a source of energy, the most important among them being the steel industry.
The World Steel Association forecasts a rebound in global steel demand, rising 1.7% in 2024 to touch 1,793 metric tons (Mt) and further increasing by 1.2% in 2025 to reach 1,815 Mt. Steel production requires ample high-quality coal and nearly 70% of global steel production depends on it. With the continued recovery in steel demand, coal exports are expected to pick up and improve in the long run. Core Natural Resources will have high-quality metallurgical at its disposal and access to export terminals to meet the expected rising demand for high-quality coal in the global market.
Will This Merger Open Doors for More Consolidation
The U.S. coal industry is currently in a weak space as overall production volumes continue to drop. Per the U.S. Energy Information Administration’s (EIA) projection, coal production in the United States is expected to drop in 2024 and 2025. EIA projects U.S. coal production to decline 14% from 2023 levels to about 500 million short tons (MMst) in 2024 and register a decline of nearly 5% to 475 MMst in 2025 due to the expected reduction in coal usage in electricity production.
The bright prospects of this merger might encourage Peabody Energy (BTU - Free Report) to look for a new merger and further expand its operations. This Zacks Rank#1 (Strong Buy) company has both thermal and metallurgical coal operations and long-term coal supply contracts with few customers which assures a steady flow of revenues.
Price Performance
This announcement has been accepted well by the market, with Arch and CONSOL showing an pre-market gain of 0.60% and 0.48%, respectively. This merger news reversed the price performance of the companies with Arch and CONSOL’s shares declining 16% and 4.1%, respectively, in the last month.
Price Performance (One month)
Image Source: Zacks Investment Research
Zacks Rank
Arch Resources and CONSOL Energy currently have a Zacks Rank#3 (Hold) each. You can see the complete list of today’s Zacks #1 Rank stocks here.