(Updates throughout to add details on land holdings, company structure.)
Murray Energy has agreed to buy a controlling stake in Illinois basin producer Foresight Energy for $1.4bn in cash, creating the third-largest US coal company.
Closely held Murray will get an 80pc voting interest in Foresight's general partnership and a roughly 50pc stake in the limited partnership, which is publicly traded, including all of the subordinated units. It will have access to other coal handling, transportation and transloading facilities owned by Foresight.
The combined companies will have 9bn short tons (8.16bn metric tonnes) of reserves and produced 89mn st in 2014, according to Mine Safety and Health Administration data. That would put it behind only Peabody Energy and Arch Coal in terms of annual US production.
The transaction is subject to certain conditions being satisfied or waived, including proceeds from financing activities the companies announced separately today.
The acquisition has the potential to nearly triple Murray's Illinois basin production by joining its three mines in the region with Foresight's four complexes in Illinois. Murray has 12 thermal coal mines in total employing 13 longwall systems in Ohio, Illinois, Kentucky, West Virginia, Pennsylvania and Utah, while Foresight has four longwalls and one continuous mining operation.
Foresight has the potential to add four more longwalls in Illinois. Its executives said last month the company expects to complete a permit application in the first half of this year for a new longwall mine near its Macoupin operation, and that it could add a third and fourth longwall to its Sugar Camp mine around 2017 and 2018.
In addition to the mines, Foresight owns the Sitran River Terminal around milepost 820 on the Ohio river and the Convent Marine Terminal in Louisiana. Murray owns the Empire dock, near milepost 896 on the Ohio, as well as the Island dock on the Green river in Kentucky and the Alicia dock on the Monongahela river in Pennsylvania.
"This will help us to compete at an entirely new level in the global marketplace," said Murray chief executive Robert Murray. The partnership with Foresight will "further reduce our coal production costs and exploit the numerous synergies in our respective operations."
Foresight founder Chris Cline will retain a 22.5pc equity interest in Foresight's general partnership and a 35pc interest in the public company.
Murray will refinance an existing loan into a $1.6bn term loan facility and sell about $860mn in second-lien senior secured notes to pay for its purchase. It is seeking creditors' approval to change certain terms of its existing second lien notes due in 2020 and 2021.
Foresight is also expected to refinance its existing term loan and revolving credit facilities.
Once this acquisition is complete, Murray will have spent about $5bn in less than two years expanding its US coal mining holdings. The company paid $3.25bn in December 2013 to buy five West Virginia longwall mines from Consol Energy. It also bought 100mn st of Consol's reserves in Illinois in October 2014.
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