Walter Energy Plans To Acquire Western Coal

Goldman Sachs has published a research report on Walter Energy, Inc. WLT after the company announced on 12/3 its plans to acquire Western Coal. In the report, Goldman writes "The proposed acquisition could, at least partly: (1) reduce mine concentration risk; (2) improve WLT's 2011E reserve/production ratio by 3+ years to 17 years, though this still would be below the 25 year median for metallurgical/CAPP reserves for met-focused peers and Peabody Energy; and (3) improve near-term growth visibility. Pro-forma for the deal, we estimate WLT would have a 20% 2010-2015 met coal production CAGR, up from 6% currently (though over 70% of the growth from a 7.4 MM tons base in 2010E is from acquiring 7.2 MM tons of 2011E WTN production). WLT has already acquired 25.3 mn WTN shares (9% of outstanding float) for about $300 mn in cash from Audley Capital. WLT hopes to acquire remaining shares with $2.1 bn cash and 9 mn shares of WLT stock." Goldman Sachs maintains its Neutral rating and $97 price target. Walter Energy closed yesterday at $115.12.