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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): May 2, 2011 (May 2, 2011)
Arch Coal, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation)
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1-13105
(Commission File Number)
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43-0921172
(I.R.S. Employer Identification No.) |
CityPlace One
One CityPlace Drive, Suite 300
St. Louis, Missouri 63141
(Address, including zip code, of principal executive offices)
Registrant’s telephone number, including area code: (314) 994-2700
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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TABLE OF CONTENTS
On May 2, 2011, Arch Coal, Inc., a Delaware corporation (“Arch”), and International Coal Group,
Inc., a Delaware corporation (“ICG”), issued a joint press release, a copy of which is attached as
Exhibit 99.1 hereto and is incorporated by reference herein, announcing a planned tender offer by
Atlas Acquisition Corp. (“Merger Sub”), a Delaware corporation and a wholly owned subsidiary of
Arch, to purchase all outstanding shares of common stock, par value $0.01 per share, of ICG, to be
commenced pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated May 2, 2011,
by and among Arch, Merger Sub and ICG.
In addition, on May 2, 2011, Arch provided supplemental information regarding ICG and the
transactions contemplated by the Merger Agreement in connection with a presentation to, and a
conference call with, analysts and investors. A copy of the presentation is attached as Exhibit
99.2 hereto and is incorporated by reference herein. A transcript of the conference call is attached as Exhibit 99.3 hereto and is incorporated by reference herein.
Additional Information
This filing is for informational purposes only and is not an offer to buy or the solicitation
of an offer to sell any shares of International Coal Group’s (“ICG”) common stock. The tender offer
described herein has not yet been commenced. On the commencement date of the tender offer, an offer
to purchase, a letter of transmittal and related documents will be filed with the Securities and
Exchange Commission (“SEC”). The solicitation of offers to buy shares of ICG’s common stock will
only be made pursuant to the offer to purchase, the letter of transmittal and related documents.
Investors and ICG securityholders are strongly advised to read both the tender offer statement and
the solicitation/recommendation statement that will be filed by ICG regarding the tender offer when
they become available as they will contain important information. Investors and securityholders may
obtain free copies of these statements (when available) and other documents filed with respect to
the tender offer at the SEC’s website at www.sec.gov. In addition, copies of the tender
offer statement and related materials (when available) may be obtained for free by directing such
requests to the information agent for the tender offer or by directing such requests to Arch’s
investor and public relations at the phone number below. The solicitation/recommendation statement
and related documents (when available) may be obtained by directing such requests to Ross Mazza at
the phone number or e-mail address below.
Arch Coal, Inc.
Investor and Public Relations
(314) 994-2897
Ross Mazza
(304) 760-2526
rmazza@intlcoal.com
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| Item 9.01. |
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Financial Statements and Exhibits. |
(d) Exhibits.
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| Exhibit |
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Exhibit Name |
99.1
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Joint press release issued by Arch Coal, Inc. and International
Coal Group, Inc., dated May 2, 2011. |
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99.2
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Investor Presentation, dated May 2, 2011. |
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99.3
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Transcript of Conference Call conducted on May 2, 2011. |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| Dated: May 2, 2011 |
Arch Coal, Inc.
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By: |
/s/ Robert G. Jones
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Robert G. Jones |
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Senior Vice President — Law, General Counsel and Secretary |
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Exhibit Index
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| Exhibit |
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| Number |
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Description |
99.1
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Joint press release issued by Arch Coal, Inc. and International
Coal Group, Inc., dated May 2, 2011. |
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99.2
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Investor Presentation, dated May 2, 2011. |
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99.3
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Transcript of Conference Call conducted on May 2, 2011. |
exv99w1
Exhibit
99.1
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News from
Arch Coal, Inc.
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FOR FURTHER INFORMATION: |
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Media – Kim Link 314/994-2936
Investors – Deck Slone 314/994-2717
and Jennifer Beatty 314/994-2781 |
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For Immediate Release |
Arch Coal To Acquire ICG for $3.4 Billion
Arch to Become Second Largest U.S. Metallurgical Coal Producer
Only U.S. Coal Producer with Assets in Every Major Domestic Coal Basin
Increases Reserve Base by 25 Percent to 5.5 Billion Tons
Expected Annual Synergies of $70 Million to $80 Million
Transaction Expected to Be Accretive to Earnings in 2012
ST. LOUIS, Mo. and SCOTT DEPOT, W.Va. (May 2, 2011) – Arch Coal, Inc. (NYSE:ACI) (“Arch”
or “the company”) and International Coal Group, Inc. (NYSE:ICO) (“ICG”) today announced that they
have signed a definitive agreement under which Arch will acquire all of the outstanding shares of
ICG for $14.60 per share, in an all-cash transaction valued at $3.4 billion. The combined company
will be the second largest U.S. metallurgical coal supplier and a top-five overall global coal
producer and marketer. Arch will have a balanced metallurgical (“met”) and thermal coal portfolio
with unparalleled operational diversification in every major U.S. supply basin and the No. 1 or No.
2 position in each of its three core operating regions.
“The acquisition of ICG is a significant strategic step that strengthens Arch’s position as a
world-class, global coal franchise positioned for growth,” said Steven F. Leer, Arch’s chairman and
chief executive officer. “This transaction will greatly expand our participation in global met
markets; provide a powerful platform for future organic met coal production growth; enhance and
further diversify our met and thermal coal product slate; extend our operating portfolio into every
major U.S. coal-producing basin; and solidify our position as one of the industry’s lowest cost
producers.”
Ben Hatfield, president and CEO of International Coal Group, said, “ICG has assembled a
high-quality portfolio of low-cost mining operations and reserves, and one of the industry’s most
talented and productive workforces. By teaming up with Arch, we expect to realize tremendous value
for the shareholders of both companies while ensuring that our operations achieve their full
potential.”
Financially Compelling Transaction
Arch anticipates that the transaction will be accretive to earnings in 2012. Arch also expects
to generate significant free cash flow based on a well-balanced product portfolio of low-cost,
high-quality assets that will be sold into structurally under-supplied met markets and growing
thermal coal markets. Based on pro forma 2010 financial results, the combined company would have
total shipments of 179 million tons of coal, $4.3 billion in revenues and $925 million of adjusted
EBITDA, with a balanced split of 50 percent of earnings generated from eastern operations and 50
percent from western operations. Additionally, Arch expects shareholders to benefit from estimated
annual synergies of $70 million to $80 million derived from the increased operating, marketing and
administrative efficiency of the combined entity.
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Further, like Arch, ICG has one of the strongest balance sheets in the U.S. coal industry,
with legacy liabilities of just $165 million. At the completion of the transaction, Arch expects
its legacy liabilities to equate to just 6 percent of its total enterprise value – a level far
below that of other diversified coal companies.
Creating a World-Class Coal Franchise Well Positioned For Growth
Arch expects 2011 pro forma metallurgical coal sales to reach 11 million tons. Over the next
three years, Arch anticipates met coal volumes from the combined operations to expand to more than
14 million tons per year, with further opportunities for revenue growth emerging from significant
blending opportunities between ICG’s low-volatile and rank A high-volatile met coals and Arch’s
existing rank B high-volatile met products.
“The combination with ICG creates a highly effective platform for optimizing the value of the
combined company’s met product slate, and for creating entirely new synthetic blends of
mid-volatile met coals that command a significant premium in the global market,” said John W.
Eaves, Arch’s president and chief operating officer. “In addition, ICG’s Tygart Valley No. 1 met
mine, which is currently under development and expected to come online in early 2014, promises a
compelling strategic growth opportunity.”
Moreover, ICG’s predominantly underground reserve base of 1.1 billion tons, nearly 30 percent
of which is met quality, provides significant additional opportunities for future coal volume
growth. In total, the combined company will have the industry’s second largest U.S. reserve
position, with 5.5 billion tons. ICG’s assets include 13 active mining complexes – and one major
mining complex under development – across three coal basins.
The acquisition of ICG also extends Arch’s geographic diversity, creating one of the
industry’s most balanced operating portfolios. With the addition of ICG’s operations, Arch will
become the only U.S. coal producer with assets in every major U.S. coal supply basin. In
particular, ICG’s Illinois Basin assets provide a powerful complement to Arch’s existing position
in this increasingly strategic region, building upon what is already a strong foundation for future
growth.
Arch expects to unlock additional value – and expand its participation in global markets
further – through the increased utilization of its extensive transportation and logistics network.
Arch has dedicated throughput rights at an export facility on the East Coast; access to shipping
terminals on the Gulf Coast and West Coast; dedicated and wholly owned terminal capacity on the
inland waterways system; and significant barge and mid-streaming capacity under commitment for the
movement of coal through the Gulf. “Through this extensive transportation network, we have
significant and growing access to high-growth seaborne metallurgical and thermal coal markets in
Europe, South America and Asia,” said Eaves.
With its unprecedented geographic and product diversity, the combined company will serve an
unparalleled mix of customers in the power generation, steel making and industrial markets in the
United States and abroad. “We believe this combination will provide tremendous opportunities for
creating value for our customers – by offering them the industry’s broadest mix of products, the
widest range of logistical options and world-class customer service,” said Eaves.
Complementary Cultures Focused on Safety, Environmental Stewardship and Shareholder Value
In addition to ICG’s high-quality assets, Arch is acquiring a proven workforce: “As a combined
company, we will maintain our unwavering commitment to what we view as the three key pillars for
success in the U.S. coal industry – safety, environmental stewardship and the creation of
shareholder value,” said Leer. “We know that the ICG workforce shares these values, and we look
forward to working with them to achieve industry-leading results.” The current workforce of the
combined company totals approximately 7,400 employees.
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Financing and Closing Conditions
Arch has obtained committed bridge financing from Morgan Stanley and PNC to fund the
acquisition and refinance certain of ICG’s indebtedness. The company expects to raise permanent
financing comprised of a mix of debt and equity. The majority of this financing would be through
debt securities, with the equity portion being sufficient to retain the company’s current credit
ratings.
The boards of directors of Arch and ICG have each unanimously approved the terms of the
transaction agreement. The transaction is structured as a tender offer to be followed as soon as
possible by a merger. The tender offer is expected to commence around the middle of May.
Shareholders holding approximately 17% of ICG’s shares outstanding have agreed to tender their
shares in the offer. The transaction is subject to customary closing conditions, including the
tender of a majority of ICG shares and regulatory approvals, and is expected to close in the second
quarter of 2011.
Advisors
Morgan Stanley is acting as the financial advisor to Arch and Simpson Thacher & Bartlett LLP
is providing legal counsel in connection with the transaction. UBS is acting as the financial
advisor and Jones Day is providing legal counsel to ICG.
Analyst/Investor Conference Call
A conference call regarding the acquisition will be held today at 9 a.m. EDT. The conference
call can be accessed via the “investor” section of the Arch Coal Web site
(http://investor.archcoal.com), or by dialing toll-free (877) 719-9789 or (719) 325-4747. No
passcode is necessary. Following the live event, a replay and podcast download will be available
for approximately two weeks.
About Arch
U.S.-based Arch Coal is one of the world’s largest coal producers, with more than 160 million
tons of coal sold in 2010. Arch’s national network of mines supplies cleaner-burning, low-sulfur
coal to customers on four continents, including U.S. and international power producers and steel
manufacturers. In 2010, Arch achieved record revenues of $3.2 billion. For more information, visit
www.archcoal.com.
About International Coal Group
ICG is a leading producer of coal in Northern and Central Appalachia and the Illinois Basin.
The company has 13 active mining complexes, of which 12 are located in Northern and Central
Appalachia and one in Central Illinois. ICG’s mining operations and reserves are strategically
located to serve utility, metallurgical and industrial customers domestically and internationally.
Important Additional Information
This press release is for informational purposes only and is not an offer to buy or the
solicitation of an offer to sell any shares of International Coal Group’s (“ICG”) common stock. The
tender offer described herein has not yet been commenced. On the commencement date of the tender
offer, an offer to purchase, a letter of transmittal and related documents will be filed with the
Securities and Exchange Commission (SEC). The solicitation of offers to buy shares of ICG’s common
stock will only be made pursuant to the offer to purchase, the letter of transmittal and related
documents. Investors and ICG securityholders are strongly advised to read both the tender offer
statement and the solicitation/recommendation statement that will be filed by ICG regarding the
tender offer when they become available as they will contain important information. Investors and
securityholders may obtain free copies of these statements (when available) and other documents
filed with respect to the tender offer
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at the SEC’s website at www.sec.gov. In addition, copies of the tender offer statement and related
materials (when available) may be obtained for free by directing such requests to the information
agent for the tender offer or by directing such requests to Arch investor relations at the phone
number or e-mail address below. The solicitation/recommendation statement and related documents
(when available) may be obtained by directing such requests to ICG investor relations at the phone
number or e-mail address below.
Arch Coal Investor Relations 314/994-2897
ICG Investor Relations Ross Mazza 304/760-2526 rmazza@intlcoal.com
Forward-Looking Statements: This press release contains “forward-looking statements” – that
is, statements related to future, not past, events. In this context, forward-looking statements
often address our expected future business and financial performance, and often contain words such
as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” or “will.” Forward-looking
statements by their nature address matters that are, to different degrees, uncertain. For us,
particular uncertainties arise from changes in the demand for our coal by the domestic electric
generation industry; from legislation and regulations relating to the Clean Air Act and other
environmental initiatives; from operational, geological, permit, labor and weather-related factors;
from fluctuations in the amount of cash we generate from operations; from future integration of
acquired businesses; and from numerous other matters of national, regional and global scale,
including those of a political, economic, business, competitive or regulatory nature. These
uncertainties may cause our actual future results to be materially different than those expressed
in our forward-looking statements. We do not undertake to update our forward-looking statements,
whether as a result of new information, future events or otherwise, except as may be required by
law. For a description of some of the risks and uncertainties that may affect our future results,
you should see the risk factors described from time to time in the reports we file with the
Securities and Exchange Commission.
# # #
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exv99w2
Exhibit
99.2
| THE POWER WITHIN
Building a U.S. Coal Industry Powerhouse — and a World-Class Global Met Franchise |
| Arch Coal, Inc. Acquisition of International Coal Group, Inc. |
| Forward-Looking Information |
| This presentation contains “forward-looking statements” — that is, statements related to
future, not past, events. In this context, forward-looking statements often address our expected
future business and financial performance, and often contain words such as “expects,”
“anticipates,” “intends,” “plans,” “believes,” “seeks,” or “will.” Forward-looking statements by
their nature address matters that are, to different degrees, uncertain. For us, particular
uncertainties arise from changes in the demand for our coal by the domestic electric generation
industry; from legislation and regulations relating to the Clean Air Act and other environmental
initiatives; from operational, geological, permit, labor and weather-related factors; from
fluctuations in the amount of cash we generate from operations; from future integration of acquired
businesses; and from numerous other matters of national, regional and global scale, including those
of a political, economic, business, competitive or regulatory nature. These uncertainties may cause
our actual future results to be materially different than those expressed in our forward-looking
statements. We do not undertake to update our forward-looking statements, whether as a result of
new information, future events or otherwise, except as may be required by law. For a description of
some of the risks and uncertainties that may affect our future results, you should see the risk
factors described from time to time in the reports we file with the Securities and Exchange
Commission. |
| This presentation includes certain non-GAAP financial measures, including Adjusted EBITDA. These
non-GAAP financial measures are not measures of financial performance in accordance with generally
accepted accounting principles and may exclude items that are significant in understanding and
assessing our financial results. Therefore, these measures should not be considered in isolation or
as an alternative to net income from operations, cash flows from operations, earnings per
fully-diluted share or other measures of profitability, liquidity or performance under generally
accepted accounting principles. You should be aware that our presentation of these measures may not
be comparable to similarly-titled measures used by other companies. |
| We’re building a U.S. coal industry powerhouse —and a world-class global metallurgical coal
franchise |
| Leading Met 2nd largest U.S. (top 10 global) met producer |
| 1. Coal Supplier Blending synergies will optimize met franchise Significant
reserve expansion opportunities Growth 25% reserve boost to create #2 U.S. coal
reserve holder |
| 2. Profile 85% increase in met coal volumes by 2015 |
| Build out of thermal platform in new basins and for export |
| Market Major producer in under-supplied met markets |
| 3. Leverage Highly levered to improving domestic thermal markets |
| Growing player in robust seaborne thermal markets Shareholder Most
Diversified Operations in every major supply basin Value |
| 4. U.S. Producer Strategically balanced met/thermal portfolio #1 or #2 position
in core operating regions Culture Shared culture of safety and environmental
commitment |
| 5. Fit Low-cost operations in every major domestic supply basin Union-free
workforce with minimal legacy liabilities Strategic Accretive to EPS in first
full year after close |
| 6. Transaction Estimated annual synergies of $70-80 million Substantial pro
forma free cash flow generation |
| Purchase Price • $14.60 per share in cash |
| • Total transaction value of $3.4 billion* Structure • Cash tender offer with back
end merger |
| • Shareholders who own 17% of ICG have agreed to tender shares Financing •
Committed financing in place to fund acquisition |
| •
Permanent financing will be a mix of debt
and sufficient equity to retain existing
credit rating |
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Majority debt financing |
| Conditions • Minimum tender condition of 50.1% |
| • Regulatory approvals and other customary closing conditions Timing • Tender to
commence around the middle of May |
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Expected to close by mid-year 2011 |
| * Based on conversion of ICG’s convertible senior notes and Slide 4 remaining
net debt of approximately $63 million. |
| Combination Strategic Rationale |
| Arch will become the 2nd largest U.S. met coal producer — and a top 10 global met
supplier |
| Top Five U.S. Metallurgical Coal Producers • Arch will have significant scale |
| (2011 expected sales, in millions of tons) |
| and leverage in
domestic and |
| international met
coal markets |
| • With optimal use of
Arch’s existing |
| export
capabilities, the
combined |
| company will
become a larger met |
| ANR* ACI* PCX WLT* CNX CLF coal seaborne supplier |
| •
Future growth
opportunities at |
| Top Ten Global Metallurgical Coal Producers |
| (2011 expected sales, in millions of tons) the combined entity will likely lift |
| 65 met volume levels meaningfully |
| 17 16 16 • Undeveloped high-vol A met |
| 11 coal reserves should allow Arch |
| ICG to become an even larger
global |
| BHP TCK ANR* WLT* AAL MTL XTA RIO ACI* BTU supplier of met coal |
| Sources: ACI, Wall Street Research and Public Data Slide 6 * Pro Forma for
ACI, ANR and WLT |
| WLT in U.S. chart excludes Canadian production |
| We expect continued strength in world met coal demand driven by growth in global steel
consumption |
| Growth in World Steel Consumption |
| (in billions of tonnes of finished steel) • Growth in world steel consumption |
| approximately 60 percent during 1.5 the next decade — with Asia 1.0
expected to drive met coal demand 0.5 going forward 0.0 • With
production and transportation |
| 2000 2005 2010P 2014P 2020P |
| constraints,
global met coal |
| Projected Deficit in Seaborne Coal Supply Trade |
| (in millions of tonnes) supply will remain tight for the |
| 0 next five years and likely beyond -25 • Internal forecasts suggest
that global seaborne coal markets will |
| -50 be under-supplied through at least 2015 |
| -75
2011P 2012P 2013P 2014P 2015P |
| Sources: World Steel Association and ACI |
| The acquisition provides expanded customer offerings through optimal met coal blending
opportunities |
| 2010 Seaborne Metallurgical Coal Supply • The U.S. is a significant supplier |
| (in millions of tonnes) of seaborne metallurgical coal —second only to Australia |
| Met • Blending Arch’s large volume of 40% high-vol coal with
ICG’s complementary quality coals: PCI/Met — Maximizes value of combined
Blend51 company’s coals in seaborne 18% 26 18 trade via Arch’s
existing and |
| Australia U.S. Canada Russia Mongolia |
| — Creates synthetic mid-vol |
| Low-Vol Mid-Vol High-Vol coals, which command highest market premium |
| — Expands product offerings in low, mid and high-vol segments |
| Slide 8 Sources: Wood-Mac and ACI |
| The acquisition provides a compelling growth opportunity to double metallurgical coal volumes
by 2014 |
| Metallurgical Coal Volumes |
| (in millions of tons)
15.0
12.0
Tygart Valley #1 Baltimore Ports Tygart Valley #2, #3 9.0 Norfolk Ports |
| • Build-out of Tygart Valley #1 mine will boost 3.0 future metallurgical coal
volumes by 2014 |
| •
Portfolio of Mountain
Laurel and Tygart coal
mines will create
world-class
metallurgical |
| 2010 2011E By 2014 By 2015 coal asset base |
| Arch ICG Expanded Platform • Undeveloped high-vol A reserves (115 million
tons) create opportunities for further volume growth over next five years |
| The acquisition greatly augments Arch’s platform for future growth in the Illinois Basin |
| • The 2.5 million tpy Viper Mine is a low-Illinois
Basin cost and highly competitive operation |
| •
With the addition of ICG,
Arch’s coal reserves will
climb to 736 million tons in
the Illinois Basin |
| • Arch owns a 49% equity stake in Knight Macoupin Reserves
Hawk, which sold 4 million tons in 2010 |
| •
With the construction of
Lost Prairie, |
| Lost Prairie Arch could have 10-12 million tons of |
| Reserves production in this basin, destined for |
| Knight Hawk Complex* domestic and export thermal markets |
| Legend • Arch is building a large portfolio of low- |
| Arch Assets chlorine assets in the Illinois
Basin, |
| ICG Assets/Reserves which should yield a
significant |
| River Docks
ACI Headquarters advantage in the marketplace |
| Sources: ACI, Ventyx Slide 10 *49% equity interest |
| Arch will play a growing role in the global seaborne met and thermal coal trade |
| • Current export capabilities can further liberate ICG’s met and thermal production
East Coast • Own 22% interest in DTA in Newport News, VA which has throughput capacity
of ~20 million tpy |
| • Ownership and throughput rights at river Gulf Coast facilities in Kentucky and
Illinois |
| • Ability to blend ILB coals with products from (New Orleans) every major operating region
for sale into the seaborne market is unmatched |
| • Secured 38% interest in Millennium Bulk Terminals in Washington state West Coast
• Agreement with Ridley Terminal in Canada |
| •
Commitments to move Western
Bituminous coals through ports
in California |
| Around the world, countries are building coal plants to fuel electricity needs |
| New Coal-Fueled Generation Coming Online by 2015 Under 249 GW
(Capacity under construction, in GW, from 2011-2015) Construction 790 million tons
Total 425 GW |
| Europe CIS countries
United States China |
| 8 83 India
2 97
Latin America
5 27
Africa 6 |
| Other Asia Middle East
425 GW of total coal-fueled capacity is planned to be online by 2015 ... and will be
fueled by 1.4 billion tons of coal |
| Sources: ACI and Platts
International, estimates based on plants
currently under construction or planned |
| Acqui
sition strengthens Arch’s position as one of the largest coal producers in the U.S. and
the world |
| Top Five U.S. Coal Producers Top Five U.S. Reserve Holders Top Five Global Coal Producers |
| (in millions of tons) (in billions of tons) (in millions of tons) |
|
| BTU ACI * ANR* CLD CNX BTU ACI * ANR* CNX PCX Coal Shenhua BTU ACI *ANR* India
#2 #2 #4
Slide 13 Sources: ACI, Ventyx, Company filings * Pro forma |
| Arch will be the #1 or #2 producer in each of the major low-sulfur basins |
| Top Producers in Southern PRB** • PRB: Arch is the second largest |
| 128 overall producer in the southern |
| 74 PRB — and the largest producer |
| Peabody Arch Cloud Peak Alpha Kiewit |
| Top Producers in Western Bituminous** • WBIT: Arch is the leading |
| Bituminous
Region, where export |
| 5 opportunities are increasing |
| Arch Pacificorp Peabody Chevron |
| Top Producers in CAPP** • CAPP: Arch will be the second largest producer and the low |
| 53
cost leader in the region, with a 22 large volume mix of
met coal |
| 17 106
Alpha* Arch* Patriot Consol James River |
| ** Figures based on 2010 sales data for ACI and MSHA production data for peers,
in millions of tons |
| Acquisition cements Arch’s position as the most diversified U.S. coal producer |
| 5.5-Billion-Ton Reserve Base |
| (pro forma reserves at 12/31/10)
Northern Powder Met/PCI reserves |
| Northern Appalachia Southern Powder 189 million River Basin 262 million |
| Central Appalachia Western Bituminous 464 million |
| • Expands operations to every major coal-supply basin |
| • Extends portfolio to include wholly owned operations in ILB and NAPP |
| • Creates unmatched U.S. product slate, with representation in all major basins |
| Arch’s newly expanded platform provides a strategically balanced thermal and met coal
portfolio |
| 2010 Pro Forma Tons Sold 2010 Pro Forma Revenues 2010 Pro Forma EBITDA
(percent of total tons by region) (percent of revenues by region) (percent of segment EBITDA
by region) |
| 83% 50% 50%
Western Eastern* |
| Sources: ACI, ICG company filings Slide 16 * Eastern operations include
Illinois Basin |
| In terms of compatibility, we make a good match |
| Safety and Environmental Low-Cost Operator |
| Existing safety and environmental values Strong operational management team that
provide a solid foundation on which to build mirrors Arch’s philosophy of operating large-scale,
low-cost mines; production mix skews heavily underground in Appalachia |
| Similar Workforce Clean Balance Sheet |
| High-performing, productive and union-free Low level of legacy liabilities will allow Arch
workforce that is focused on creating to maintain one of the cleanest balance shareholder value
sheets in the U.S. coal industry |
| Arch has a proven management team with a record of highly successful transactions |
| • Highly experienced senior management team |
| — Top 10 officers have an average of 25+ years experience in the industry |
| • Exceptional track record of integrating assets |
| • Proven ability to de-lever balance sheet following acquisitions |
| — Nearly $3 billion in acquisitions since formation as public company |
| 9 Ashland Coal
9 ARCO Coal Company
9 North Rochelle
9 Jacobs Ranch |
| • Completed major organic mine developments over the past decade |
| • Recognized as one of industry’s most skillful operators |
| ICG offers significant synergies with Arch; Arch has a history of exceeding synergy targets |
| Marketing Creating synthetic mid-vol product Leveraging broader
product slate |
| Unlocking export value via logistics network Operating Purchasing savings
Insurance / bonding cost savings SG&A Administrative savings |
| Total $70 million — $80 million |
| History of Exceeding Targets |
| Transaction Announced Synergies Captured Synergies |
| North Rochelle $15 — $20 million ~$30 million Jacobs Ranch $45 — $55 million ~$60 million |
| The combined company presents a strong pro forma estimated financial outlook |
| $5.0+ • Pro forma revenues of $3.8+ $5+ billion |
| •
Expected growth in
EBITDA |
| Arch Arch pro forma of nearly 40 percent |
| Adjusted EBITDA (in $ millions) $1,370 • Improved EBITDA margin to |
| $75* ~27 percent of revenues $990 |
| •
Prudent management of
capital expenditures |
| Arch Arch pro forma • Significant cash flow |
| Capital Spending (in $ millions) generation capabilities |
| Notes:
Arch Arch pro forma |
| 2011 estimated
data represents
mid-point of provided
guidance by respective
companies in Q1
earnings releases. |
| Estimated revenues based on production and average price guidance Slide 21 *
Represents average yearly run-rate synergies |
| Fully committed acquisition financing |
| • Fully committed bridge facility by Morgan Stanley and PNC |
| — Sufficient to fund acquisition and redeem ICG’s debt |
| • Permanent financing
—Mix of debt and equity
—Majority of financing in debt securities
—Objective to retain current credit rating |
| • Targeting new revolver of $1.5 billion |
| • Prudent financing to retain flexibility and sound liquidity position going forward |
| Arch maintains one of the cleanest balance sheets in the U.S. coal industry
Legacy Liabilities of Largest U.S. Coal Companies• Lowest level of legacy liabilities
(at 12/31/10 pro forma, in $ millions)
versus largest public U.S. coal 4,451companies
•Low legacy liabilities at ICG
•Approximately two-thirds of Arch’s pro forma legacy liabilities 1,951are comprised of reclamation
1,7921,657
liabilities
640
CNX PCX ANR* BTU ACI*
Workers’ CompPost-Retirement Medical PensionReclamation
Sources: ACI and Public Data Slide 23* Pro Forma |
| Acquisition creates a U.S. coal industry powerhouse —and a world-class met coal franchise |
| 1. No. 2 U.S. (Top 10 Global) Met Coal Producer |
| 2. Compelling Future Growth Profile |
| 3. Significant Leverage to Met/Thermal Markets |
| 4. Most Diversified and Balanced U.S. Producer |
| 6. Financially Strong, Strategic Transaction |
| Building a U.S. Coal Industry Powerhouse — and a World-Class Global Met Franchise |
| Arch Coal, Inc. Acquisition of International Coal Group, Inc. |
| Important Additional Information |
| This presentation is for informational purposes only and is not an offer to buy or the
solicitation of an offer to sell any shares of International Coal Group’s (“ICG”) common stock.
The tender offer described herein has not yet been commenced. On the commencement date of the
tender offer, an offer to purchase, a letter of transmittal and related documents will be filed
with the Securities and Exchange Commission (SEC). The solicitation of offers to buy shares of
ICG’s common stock will only be made pursuant to the offer to purchase, the letter of transmittal
and related documents. Investors and ICG securityholders are strongly advised to read both the
tender offer statement and the solicitation/recommendation statement that will be filed by ICG
regarding the tender offer when they become available as they will contain important information.
Investors and securityholders may obtain free copies of these statements (when available) and
other documents filed with respect to the tender offer at the SEC’s website at www.sec.gov. In
addition, copies of the tender offer statement and related materials (when available) may be
obtained for free by directing such requests to the information agent for the tender offer or by
directing such requests to Arch investor relations at the phone number or e-mail address below.
The solicitation/recommendation statement and related documents (when available) may be obtained
by directing such requests to ICG investor relations at the phone number or e-mail address below. |
| Arch Coal 314/994-2897 cinchiostro@archcoal.com Ross
Mazza rmazza@intlcoal.com 304/760-2526 |
exv99w3
Exhibit 99.3
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
E
1
PARTICIPANTS
Corporate Participants
Deck S. Slone - VP-Government, Investor Relations & Public Affairs
Steven F. Leer - Chairman & Chief Executive Officer
John W. Eaves - President & Chief Operating Officer
John T. Drexler - Chief Financial Officer & Senior Vice President
Other Participants
David M. Khani - Senior Managing Director & Director of Research, FBR Capital Markets
Brian D. Gamble - Associate, Simmons & Co. International
Shneur Z. Gershuni - Analyst, UBS Securities LLC
Paul Forward - Managing Director, Stifel, Nicolaus & Co., Inc.
Mark A. Levin - Research Analyst, BB&T Capital Markets
James M. Rollyson - Research Analyst, Raymond James & Associates
Jeremy Sussman - Vice President & Senior Analyst, Brean, Murray, Carret & Co. LLC
Andre Benjamin - Research Analyst, Goldman Sachs & Co.
Michael S. Dudas - Research Analyst, Jefferies & Co., Inc.
Brandon Blossman - Vice President, Tudor Pickering Holt & Co. Securities, Inc.
Curt Woodworth - Analyst, Macquarie Capital (USA), Inc.
Brett M. Levy - Co-Director of High Yield Research, Jefferies & Co., Inc.
John Bridges - Senior Analyst, JPMorgan Securities LLC
David S. Martin - Research Analyst, Deutsche Bank Securities, Inc.
David Adam Katz - Analyst, JPMorgan Securities LLC
Justine Fisher - Research Analyst, Goldman Sachs & Co.
MANAGEMENT DISCUSSION SECTION
Operator: Please standby. Good day everyone and welcome to this Arch Coal Incorporated
Conference Call. Today’s call is being recorded.
At this time, I would like to turn the call over to Mr. Deck Slone, Vice President of Government,
Investor and Public Affairs. Please go ahead, sir.
Deck S. Slone, VP-Government, Investor Relations & Public Affairs
Good morning, thanks for joining us today. Before we begin, let me remind you that certain
statements made during this call, including statements relating to our expected future business and
financial performance, may be considered forward-looking statements pursuant to the Private
Securities Litigation Reform Act. Forward-looking statements by their nature address matters that
are, to different degrees, uncertain. These uncertainties, which are described in more detail in the
annual and quarterly reports that we file with the Securities and Exchange Commission, may cause
our actual future results to be materially different from those expressed in our forward-looking
statements.
We do not undertake to update our forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required by law. This conference call is |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
2
for informational purposes only and is not an offer to buy or the solicitation of an offer to sell any
shares of International Coal Group’s common stock.
The tender offer described herein has not yet been commenced. On the commencement date of
the tender offer, an offer to purchase, a letter of transmittal and related documents will be filed with
the SEC. The solicitation of offers to buy shares of ICG’s common stock will only be made pursuant
to the offer to purchase, the letter of transmittal and related documents.
On the call this morning, we have Steve Leer, Arch’s Chairman and Chief Executive Officer; John
Eaves, Arch’s President and Chief Operating Officer; and John Drexler, our Senior VP and CFO.
Steve, John and John will begin the call with some brief formal remarks and, thereafter, we’ll be
happy to take your questions. Steve?
Steven F. Leer, Chairman & Chief Executive Officer
Thank you, Deck, and good morning. Today we’d like to focus on creating — the significant additive
value and impact of ICG on Arch. We’re not going to be focused on the Arch story that everyone
already knows, but really the expansion of the Arch story. Today, with the agreement with ICG,
we’re creating a global met franchise, expanding the U.S. position of Arch and becoming the most
diversified miner in the U.S.
When you look at the met coal markets today, I mean we’d be the first to say that over the years we
always would like more met coal, but pricing has been reasonably robust. What’s not well
appreciated I think within that ICG franchise is that they were at the cost of significantly expanding
their production, and we really believe the market had not fully recognized that yet.
So while pricing has been reasonable, really the low point in this particular transaction has been
that ICG’s expansion, their met coal reserve, the blending opportunities with Arch offer a significant
upside that we see occurring virtually from day one. And as we’ve indicated in some of the press
release and will talk about today, creates accretive values to EPS per share, cash flow per share,
free cash flow per share, EBITDA, moving forward from 2012 and beyond. So a significant strategic
transaction, a significant positive financial transaction, and we think all of it creates real shareholder
value.
The growth profile of Arch becomes the number two U.S. met coal producer, a top 10 world met
coal producer, and really building out our thermal platform for new basins and exports as well. We
will see an 85% increase in met coal production by 2015 and with some of the unassigned reserves
of ICG, that that number has the capability of expanding well beyond that number as we move
through the rest of this decade. Just a significant transaction that creates market leverage of — to
the supplied, the undersupplied met coal markets and to improve — and to the improving thermal
coal markets as well.
At the end of the day, though, this is a global met coal story with enhanced thermal coal as an
addition. So very excited about it, we — as I said, we’ll become the most diversified U.S. producer
and importantly in any transaction of this size and nature, the cultural fit becomes important and
when you look at the Senior Management of ICG, many of them have worked with Arch or for Arch
at previous times in their career. We have very similar approaches to the core values that Arch
really bases all of our transactions and our activities on of being a leader in safety and
environmental performance and with the singular goal of creating shareholder value. There is
absolutely no difference in t
he goals that we see and the cultural fit at ICG and Arch. |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
3
The low cost mines, if you look historically at cash production costs of ICG Central Appalachian
mines compared to Arch’s mines compared to the rest of the industries, the two of us consistently,
quarter after quarter, lead the industry in terms of low cost production.
Union free work forces with minimal legacy liabilities; again, the opportunity to maintain a strong
balance sheet and the cash flow generation capability the corporation does — the combined
companies allow us to quickly reduce any leverage involved in the current transaction.
Again, let me reemphasize it’s a financially strong accretive transaction, accretive to EPS in the first
full year after the close; estimated annual synergies of combining the companies will be $70 million
to $80 million, and there’s substantial free cash flow generation capabilities. So it’s truly one of
these — many people say it, but truly one of these transactions where two plus two equal 5, 6 or
perhaps even 7. And the accretive nature of the transaction really grows dramatically as we bring
on new production in the Tygart 1, 2, 3 mine and the blending capabilities and the infrastructure
capabilities that Arch brings to the transaction as well.
Turning to slide four, the transaction details, let me briefly walk you through the terms of this
transaction. We intend to acquire all of the outstanding shares of ICG for $14.60 per share,
applying a total equity value of $3.4 billion. The transaction is structured as a tender to be followed
as soon as possible by a merger. The tender will commence around the middle of May.
Shareholders holding approximately 17% of ICG’s shares outstanding have agreed to tender their
shares in the offer. The transaction is subject to the customary closing conditions, regulatory
approvals, and is expected to close by the middle of the calendar year 2011.
I’ve briefly touched on the strategic combination rationale, but turning to slide 6, let’s dig into a little
more of the detail. Arch will have significant scale and leverage to both the domestic market and
the international met coal market. When you look at the met coal producers on a global scale,
we’ve become — moved into the top ten. Our objective will be to further move up that production line
as we bring on the — again the under appreciated, I think, met coal reserves that ICG is currently in
the process of developing, and we plan on being able to accelerate some of their other met coal
reserves, and we’ll immediately start permitting some of those reserves with the closure of the
transaction.
More importantly, perhaps, is the ability to blend ICG’s very high quality Grade A met coal, their
low-vol production out of Beckley mine and some of their mid-vol production with Arch’s met coal
production and PCI to create significant value for our shareholders, significant value for our
customers, and really offering a diversified slate of product that encompasses all of the products
that are available and requirements in the marketplace so an exciting time; very interested in
moving forward quickly with this transaction. Our structure allows us to be able to move forward
within six to eight weeks to close the transaction, assuming all the regulatory approvals and
everything move forward in a reasonably expeditious manner.
Turning to slide seven, one of the things that have helped drive this is this entire view as we look
forward is, by almost all of the projections, the markets are going to be undersupplied for both
steam and met coal certainly for the next five years and we think well beyond that. Just focusing on
the next five
years, steel demand is expected to grow 60% during the next decade within — with
Asia leading the way, but really growth across the entire globe.
As you look at those numbers and you start thinking, where are we going to get the metallurgical
coal to really supply the demand to produce that much steel? It comes down that, by any reasoned
analysis, that supply is going to be certainly tight for the next five years, probably well beyond. You
have to make the assumptions that current projects come on line with on the projected dates,
current infrastructure comes online on their projected dates. And history would tell us in this
industry, that’s not a very realistic expectation. |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
4
As you can see in the bottom part of that slide in the left hand corner, we’re forecasting a deficit in
seaborne coal supply trade growing to the 2015 period and, frankly, as the globe continues to
develop, we think that these numbers could even get larger. We saw a very interesting presentation
a month or so ago on just global GDP growth over the next decade from 2011 to 2020, which
basically the numbers were about a four times where we are today.
And — while the purpose of the presentation was to talk about GDP in some of the developing
economies, I was sitting in the audience thinking how do we supply the energy to make that
happen, even if it’s only three time, but what if it’s five times? So again, a tremendous synergistic
transaction, tremendous intrinsic value we think in ICG and frankly in Arch that has not been fully
realized within the marketplace, and that we will help unlock that value for our shareholders moving
forward.
John W. Eaves, President & Chief Operating Officer
Yeah, this is John Eaves. I wanted to touch a little bit on the basics of the transaction here from a
production and marketing standpoint. On slide eight, if you look at the U.S., I mean clearly they’re a
significant supplier to the seaborne market, and we think Arch is going to play a major role in that.
If you look at Arch’s large volume of high-vol coal, the ability to blend that with the products that
ICG has, we think we have real opportunities in the seaborne market. Given our infrastructure, our
barging positions, our transloading, midstreaming positions in the Gulf, we think we’re really going
to have a really wide slate of products to offer our customers. In addition to the high-vol B that we
have, we’ll have low-vol, mid-vol, high-vol A and tremendous blending opportunities not only for the
seaborne market, but for the international market as well.
On slide 9, if you look at the transaction and the growth opportunity it offers for Arch, you can seen
in 2011 we’re forecasting met sales at about 11 million tons, growing to 13 to 14 million tons by
2014 and almost 15 million tons by 2015. So you know a lot of that growth is driven by Tygart
Valley No. 1 mine, which is forecasted to come on in 2014. Beyond that, we also have additional
growth opportunities with Tygart Valley No. 2 and No. 3, which we will be aggressively working on
permits and looking at bringing that production on in the future as well. So when you combine this
operation and what we have with Mt. Laurel, Cumberland River and Lone Mountain, we think we’re
in a very strong position from a met supply standpoint globally as well as in the U.S.
Slide 10, if you look at what ICG is doing in Illinois, combined with what Arch was already doing,
they have a very cost competitive mine called the Viper mine. If you look at the income combination
with the reserve base that Arch has, it gives us over 730 million ton reserve base. But the attractive
thing in Southern Illinois with these reserves, they’re lower chlorine, higher Btu coal.
Given what we’re doing with our own Lost Prairie reserve, our joint venture with Knight Hawk and
what we could do with Viper in the next five plus years, we could be producing 10 to 12 million tons
of a product that would not only be well received in the domestic market, but would be well received
in the international market as well. So we really like how this transaction positions us in the Illinois
market.
On slide 11, the last couple of years Arch has worked really hard to develop our infrastructure,
continue to build on that to really allow us to
attack the seaborne demand that we see developing
over the next five years. If you look at the product mix that ICG has and the ability to blend those
products with the products that Arch has at our DTA facility, we think it unlocks significant value for
the export market. If you look at the opportunities in the Gulf Coast, our ownership in Kentucky, our |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
5
throughput agreements in the Illinois St. Louis area, allows us to customize blends for shipments to
the Gulf with our barging capacity and with our midstreaming capacity.
I think we’ve talked about the West Coast; clearly, our investment in Millennium Bulk Terminal in
Washington State, our transloading agreement with Ridley Terminal in Canada, and the throughput
volumes we have going off the West Coast out of California into the Asian markets, clearly make
Arch, with this transaction, a major exporter of coal. Our plans would be to export between 8 million
and 9 million tons of coal in 2011 through the thermal and the metallurgical markets.
And why are we doing that? If you look around the world, we’ve identified 249 gigawatts of new
coal-fired generation that’s being build between now and 2015. This is going to require almost 800
million tons of new coal supply during this time period. We think this transaction only enhances our
ability to participate and attack the growth that we see primarily in the Asian markets.
If you look at slide 13, in terms of how it positions us not only in the United States but around the
world, you can see in the U.S. in terms of coal production, in almost 180 million tons; it positions us
as the number two. In terms of a reserve position, it gives us 5.5 billion tons of very low-cost
thermal metallurgical coal. And in terms of global production, you can see at almost 180 million
tons, it positions us in the top five, which clearly we think is a competitive advantage as we look to
the world markets in the future.
On slide 14, if you take a look at the low-sulfur basins, first looking in the PRB, we have the second
largest overall production in this basin, but the largest production of 8800-Btu coal. We think that’s
clearly a competitive advantage. If you look in the Western Bit regions, which consists for us
Colorado and Utah, we have a leading position there and more and more focus of that production is
in the International arena. We’re very pleased with what we’re seeing in the Asian markets off the
West Coast as well as European and South American opportunities through the Gulf of Mexico.
And then if you look at our position in Central App, second in production but we think clearly a cost
leader in terms of our production cost, which gives us a real advantage not only in the metallurgical
markets, but in the thermal markets as well. So all three basins, strong positions in terms of
production and cost allows us to be very competitive.
I think, if you look out throughout the United States, and if you look at the 5.5 billion ton reserve
base that we created through this transaction, you can see our position on slide 15, in the Northern
and Southern PRB, our position in the Western Bituminous region, and then the addition in
Northern App as well as the growing position that we create in Central App, and then the almost
730 million tons that we’d create in the Illinois Basin.
We think this diversified supply position gives us a real competitive advantage. If you look on this
slide in the numbers depicted in the gold, you can see those are the met reserves that we have in
the Northern App and Central App. And you can see we have between 400 million and 500 million
tons of very strong metallurgical coal that can not only served the U.S. markets, but serve the
international markets as well.
Slide 16, I think when you think about Arch, you think about most of the volume and most of the
income coming out of the Western United States. And I think if you look at the pie chart to the left,
clearly on a pure volume sold basis, over
80% of our volume comes out of the Western United
States. But if you step back and you look at the revenues and the EBITDA, it’s fairly well diversified
East to West and if you look at our position in terms of our transportation networks, we ship coal on
all four Class I railroads, we have access to the river system, we have strong barging positions for
the Gulf, and we have throughput agreements in for our midstreaming and transloading in the Gulf.
So we think this really positions Arch very well for the domestic as well as the international markets. |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
6
On slide 17. If you look at the two organizations in the terms of compatibility, I think what our plans
is to continue to build on the safety environmental performance that ICG has already developed, we
see an opportunity to introduce our behavior-based safety program and our compliance
management system into the ICG program and continue to build on the success they’ve had over
the last couple of years.
If you look at their cost position, I think they’ve got the same passion for cost control that we have
here in Arch. The combined position that we’re going to have in Central App as well as Northern
App gives us a real competitive manage, I think, from a cost standpoint.
If you look at the workforces, very compatible, there’s a cultural fit; it’s a 100% union free and we
think that really makes a difference as we move forward in the marketplace. In terms of the balance
sheet, I think we look at the legacy liabilities of ICG combined with Arch, we have the lowest of any
publicly traded company and that clearly gives us a strong position as we look to growth in the
future.
On slide 18, if you look at the management team of Arch, I mean, clearly the top ten officers have a
lot of experience in putting together assets and integrating them quickly and efficiently. If you look
back over the last 12 to 14 years in the transactions we’ve done, we’ve been very successful at
doing these quickly. We’ve also been successful in organic mine development, most recently with
the Mount Laurel development. We hope to continue that success as we continue to look at the
further development of Tygart No. 1 up in the Northern App region.
And I think from a cost standpoint, we’re recognized exhibiting very good cost control, as ICG, as
we think the combination of those two clearly gives us a powerful position from a cost standpoint as
we move forward.
On slide 19, if you look at the synergies that we’ve targeted from this transaction, we’ve really
developed from three buckets. If you look at the marketing side, a lot of those synergies are going
to be driven by blending the utilization of our infrastructure, whether it would be ports, barging,
transloading in the Gulf.
On the operating side, we’ve identified some purchasing savings, insurance, bonding savings.
Hopefully as we get into that, we continue to find those opportunities. And then the third bucket
would be SG&A. We think that there’s some savings in that area as well. As Steve mentioned
earlier, we’ve identified $70 million to $80 million of annual synergies; assuming a transaction close
mid-year, we would expect to get those as we approach 2012.
I think if you look back over the history of Arch and the targeted synergies and what we’ve actually
captured in terms of synergies, we’ve had a very successful track record. And I think this would be
no exception. As we get into this segment and start looking at additional opportunities, we would
certainly hope to meet or exceed the synergies that we’ve outlined in this transaction.
With that, I’d like to turn this over to John Drexler to talk about the deal dynamics. John?
John T. Drexler, Chief Financial Officer & Senior Vice President
Thanks, John. We appreciate your interest in this transaction. And as John and Steve have
indicated, we’re excited about this opportunity.
Let’s start on slide 21, and we’ll discuss Arch’s strong pro forma financial outlook. As you can see
here, the combined company will have very strong financial metrics. Our new size and scale will |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
7
result in robust revenues and earnings. Revenues are expected to grow from $3.8 billion to over $5
billion on an annual pro forma basis.
EBITDA based on our and ICG’s guidance is expected to grow nearly 40% to approximately $1.4
billion, including our expectation for synergies associated with the transaction. And finally, we
expect to unlock further value by funding attractive growth projects such as the development of the
Tygart Complex and its met coal production. Using EBITDA as a proxy for cash flows and looking
at our expectation for modest capital spending, it is clear that we will have very healthy free cash
flows post the acquisition.
On slide 22, we cover our expectation of financing for the transaction. Arch has obtained committed
bridge financing from Morgan Stanley and PNC to close the transaction. Our expectation would be
to raise permanent financing in the capital markets, prior to close, that would utilize a combination
of debt and equity securities. The majority of this financing would be with debt securities, and we
would include an equity component that would be sufficient to retain our current debt rating.
As we have done in previous transactions, most recently the Jacobs Ranch transaction, we plan to
utilize our healthy cash flows post the acquisition to lower the leverage on our balance sheet. In
addition to the capital market transactions, we’ve planned to put in place a new $1.5 billion revolver
to support the expanded company. Overall, we believe this is a prudent financing and allows us to
retain financial flexibility and ample liquidity.
On slide 23, another attractive attribute of the transaction is the extremely low legacy liabilities of
the combined company. As you know, Arch has maintained very low legacy liabilities. ICG has also
maintained very low levels. As a result, post the transaction, Arch will have a pristine balance sheet
from a legacy liabilities perspective with over two-thirds of the liabilities comprised of reclamation
obligations. Legacy liabilities are debt-like in their attributes and are a drag on a company’s
earnings and cash flows. Our legacy liability profile separates us from our competitors.
In conclusion, from a financial perspective, post the transaction, Arch Coal will have a strong
balance sheet and excellent liquidity with healthy cash flows.
Now I’d like to turn the call back over to Steve for some summary remarks.
Steven F. Leer, Chairman & Chief Executive Officer
Thank you, John. And before we open to questions, on slide 24, I’d just like to reiterate why are we
doing this, and why are we doing this transaction now. We think there’s a tremendous intrinsic
value in ICG that they are right at the cusp of expanding their met coal production, when you
combine that with Arch’s med coal production, when you combine that with our infrastructure
commitment and assets already in place, the ability to create significant value moving forward, the
timing worked out extraordinarily well.
We do become the number two U.S. producer in metallurgical coal, a global top 10. The growth
profile with over 400 million tons of met coal reserves; I think the Illinois reserve and development
play as very important as we move into the middle of this decade; becomes very, very compelling.
Significant leverage to the met coal and thermal markets as we moved forward, significant free
cash flow, as we move forward; and we are the most diversified and balanced U.S. producer in
combination.
Again, when we look at any combination of businesses, the cultural fit sometimes gets a no
ignored; we think it’s a very important because integrati
on, speed of integration, the ability to
approach problems and see them similarly, most importantly, to see the core values as we do, we |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
8
think is very important to preserving and creating shareholder value. Most mergers, I think, or
acquisitions fail on this point when they do fail and we have such a good alignment that we feel
very, very good about that. The core values of safety environmental performance are just as
intrinsic to ICG as to Arch.
I think another interesting point is, when you look at the Tygart 1 mine. It looks at and is designed
very similarly to our Mountain Laurel mine and that probably shouldn’t come as a surprise to
people. When you look at Ben Hatfield and his senior team, they were working for Arch; in fact, Ben
was very much involved in the initial planning and design of our Mountain Laurel mine.
I think as they’ve developed Tygart they’ve used many of the same approaches in really designing
what will be a great coal mine. Importantly, I think we can bring now to the transaction some of the
lessons learned as in running Mountain Laurel and apply them to Tygart, so really should get off to
even a better start from already what I would consider one of the best coal mines in the entire world
with our Mountain Laurel mine.
Let me just close; the goal is to create shareholder value, it’s a financially strong and strategic
transaction. We’re designing this to preserve our credit ratings. We’re unlocking the intrinsic value
of what I think have been — that the market hasn’t really focused on some of the intrinsic value
within Arch and our metallurgical coal reserves are positioned in low chlorine as we move forward
with some of the thermal markets here in the U.S, and thinking about the new regulations that the
EPA has put out, just how strong that’s going to be in the value creation and increasing blending
and throughput capabilities of our infrastructure.
Again, I will say that with the development of Tygart No. 1 and Tygart No. 2, along with our own
expansion, we see significant shareholder value creation, the unlocking of significant value that
singularly the two companies would have greater challenge to do, so again I think it is a deal that
takes two plus two and make 5, 6 or 7, so we’re excited about it.
And with that, operator, I’d be more than happy to open it up to questions. |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
9
QUESTION AND ANSWER SECTION
Operator: Thank you. [Operator Instructions] We’ll take our first question from David Khani with
FBR.
<Q — David Khani — FBR Capital Markets>: Good morning, gentlemen.
<A — Steven Leer — Chairman & Chief Executive Officer>: Hey, David. How are you?
<Q — David Khani — FBR Capital Markets>: I’m good, I’m good, thank you. Can you do me a
favor, can you try — I know it’s going to be hard, but can you give me a rough idea of how much
would you attribute of this acquisition, is the met side of their business versus the steam? And
that’s sort of question number and question number two would be, the combined entity, if you look
at 2012, how much do you expect to export in 2012 and then maybe looking out further with the
West Coast ports, how much you think you’ll be able to export combined 2015 or something like
that?
<A — John Eaves — President & Chief Operating Officer>: David, this is John, yeah, on the first
piece, clearly the met was a real driver when we looked at this transaction. As Steve indicated, if
you look what Arch is doing, primarily our product mix is a high-vol B and PCI. You combine that
with what the ICG guys have, you know, they’ve got low-vol, they’ve got high-vol A; blending all
those products gives us a whole new portfolio of products to market. We also have the ability with
our infrastructure to create a mid-vol product which, as we all know, is very desirable in the
marketplace.
So clearly it was a driver. Our forecast for 2011 is about 11 million tons on a combined basis. That’s
fairly steady as we move into ‘12, a little bit of growth in ‘13, 13 million to 14 million tons in 2014,
and then approaching about 15 million tons in 2015. So, clearly, the met was a driver. We see
opportunities not only in the United States, but globally as well.
So I think the combination of the products really is pretty powerful. If you look at the ICG products, I
mean, they have some strong high-vol A products that are really a good mix with the products we
have. The combination of those is very compelling, certainly, around the world.
Your question on the West Coast by 2015, I mean obviously we’re doing everything we can to
facilitate additional capacity off the West Coast. I’d be a little hesitant to say what it would be in
2015, but clearly we see that volume’s growing over the next two or three years, not only with
Millennium, but some other facilities as well. So we’re pursuing all those.
As we look around the world, we think the market really wants supply off the West Coast. Steve
indicated in his comments that we’ve identified a 300 million ton shortfall over the next 3.5 years,
about two-thirds of that is thermal and a third of that is met. So anybody that’s well positioned with
their reserves, transportation networks and port infrastructure is going to do very well. And that,
actually David, that’s predicated on everything coming on as scheduled and as we all know in this
business that rarely happens.
<Q — David Khani — FBR Capital Markets>: All right. And then sort of last, third question, and I’ll
let the next person, is what kind of met pricing were you using to sort of determine that it’s accretive
for next year?
<A — John Eaves — President & Chief Operating Officer>: You know David, I don’t want to give
you specifics, but what I will tell
you, we ran our analysis, we used numbers at well below what
we’re seeing in the market today. |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
10
<Q — David Khani — FBR Capital Markets>: Okay, great. Thanks guys.
<A — Steven Leer — Chairman & Chief Executive Officer>: Thank you, David.
Operator: We’ll take our next question from Brian Gamble with Simmons & Company.
<Q — Brian Gamble — Simmons & Co. International>: Good morning, guys.
<A — Steven Leer — Chairman & Chief Executive Officer>: Good morning, Brian.
<A — John Eaves — President & Chief Operating Officer>: Good morning.
<Q — Brian Gamble — Simmons & Co. International>: A couple of things, one you mentioned
using primarily debt to finance the deal from a permanent financing basis, but equity as needed. Is
there any way to kind of quantify the equity piece given that you want to keep your rating the same?
Is there a target there that we’re looking for?
<A — John Drexler — Chief Financial Officer & Senior Vice President>: Brian, we can’t comment
on what that ultimate structure is going to be other than to say that expectation or that the financing
will be a majority of debt. And then, an equity component to preserve that rating, and we’ll be
looking at that as we move forward. But once again, we’ll have the majority of that within the
transaction.
<Q — Brian Gamble — Simmons & Co. International>: And then on that same line, the thought to
do it as a tender, just to get it done quicker, maybe you could walk through, why you chose to do it
that way and how you think you’re going to get it done before the end of the second quarter; that
just seems pretty aggressive, but hopeful but aggressive?
<A — John Drexler — Chief Financial Officer & Senior Vice President>: Yeah, no I think the
tender structure, as we looked at it, allowed us to move very quickly and gave us what we believe
with the best opportunity to secure the deal with ICG. So we feel very comfortable with the structure
of the offer and our plans as we move forward with how we plan to structure the financing
associated with it.
<A — Steven Leer — Chairman & Chief Executive Officer>: This is Steve. I have a personal bias,
I think, as I look at any major transaction of — within U.S. corporations and business, is that speed
of integration, speed of closing the deal and really implementing your integration strategy on an
accelerated basis. I mean it’s a heck of a lot of hard work for everybody but that it really creates
value for the shareholder. In fact I have the, again, the view that if you look at a transaction that
takes a year to integrate, it’s probably destroying shareholder value.
So the all cash tender allows us to move very quickly. And we think it is very attractive to our
shareholders and to their shareholders from a certainty of closing, certainty of value and a certainty
from our perspective of what’s the transaction going to cost. So again, all the pieces meshed
together and it’s another one of these components that in when you look at the intrinsic value and
creating that — those cash flows, speed is better than a slow pace, I guess, on a deal like this we
think.
<Q — Brian Gamble — Simmons & Co. International>: And then quickly on the met side, you
mentioned the ramp up. We know the Tygart timing from ICO; they’ve been pretty diligent in telling
us what was going on there. Are
there additional projects in your forecast for 2013-2014 volumes
that are besides Tygart? You mentioned opportunities and permits that you’re going to try to put in
place but are there additional volumes in there or is it all Tygart related? |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
11
<A — John Eaves — President & Chief Operating Officer>: You know, Brian, most of it’s Tygart
related. I mean obviously we’re going to continue to try to maximize what we’re doing at Mount
Laurel, Cumberland River and Lone Mountain, but most of the growth will be Tygart No. 1. And
then as I said earlier, we’re going to aggressively look at the permitting process in terms of how it
relates to Tygart 2 and 3 because we think there’s a tremendous opportunity there as well. But
most of the growth will be driven at least over the next couple of years, but Tygart No. 1.
<Q — Brian Gamble — Simmons & Co. International>: Perfect guys, congratulations.
<A — Steven Leer — Chairman & Chief Executive Officer>: All right, thank you.
Operator: Next we’ll move to Shneur Gershuni with UBS.
<Q — Shneur Gershuni — UBS Securities LLC>: Hi, good morning guys.
<A — Steven Leer — Chairman & Chief Executive Officer>: Good morning, Shneur.
<Q — Shneur Gershuni — UBS Securities LLC>: Just to follow-up on Brian’s earlier question just a
little bit, I understand that you can’t give us a target of your mix of debt and equity. But you did say
that you wanted to retain your credit rating. Is there kind of like an EBITDA — a debt-to-EBITDA
target that you’re looking to get under? Is it 2.5 times or below or can you give us a little bit of color
with respect to that?
<A — John Drexler — Chief Financial Officer & Senior Vice President>: Shneur, as we’ve
structured this, the objective is to make sure that we’re balancing the return to shareholders and the
importance of the strong and flexible balance sheet that gives us significant liquidities, it allows us
to whether any type of market condition as we move forward. We’re not going to provide any
targets of what we’re shooting for there. It is safe to say that we see significant cash flows post the
acquisition. As we’ve done in previous transactions, where we have slightly levered the balance
sheet to acquire a very strategic, important asset to us, we’ll focus very quickly on bringing that
leverage down. So that will continue to be our focus as we move forward with structuring the
financing for the transaction.
<Q — Shneur Gershuni — UBS Securities LLC>: Okay. And then the — kind of a follow-up to the
synergies question that was asked earlier, I was wondering if you could walk us through some of
the drivers; you obviously mentioned met was an under utilization of DTA part of the calculations as
well too. Also, if you can talk about any CapEx avoidance opportunities by putting the operations
together would be great?
<A — John Eaves — President & Chief Operating Officer>: Yeah, I mean first on the marketing
bucket, I mean clearly a lot of that value is driven by our abilities to blend. And Mike Hardesty and
those guys did a great job, but they didn’t really have the infrastructure to really put the products
together and blend. And we think having DTA, having our barge capacity locked in, having the midstreaming
capacity in place for the Gulf, gives us tremendous opportunity to unlock a lot of that
value. So that’s primarily the diver on the marketing side.
In terms of capital allocation, to be honest with you, there’s not a lot of it built in to the operating
synergies. We’ll expect a
s we get into that, we’re going to find more of that but right now, we really
haven’t forecasted anything in that operating bucket on the capital side. So with a little luck, we’ll
get some of that as me forward. |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
12
<Q — Shneur Gershuni — UBS Securities LLC>: And one final question if I may, what’s the
management team going to look like of the combined company? Will Ben be participating in the
new company?
<A — Steven Leer — Chairman & Chief Executive Officer>: Right now as we look at it, this is an
acquisition by Arch and they’ve put in some places for change of control so we will go through the
senior management there, but at the moment, I would anticipate that Arch’s senior management
will be running the combined company.
<Q — Shneur Gershuni — UBS Securities LLC>: Great. Thank you very much and
congratulations.
<A — Steven Leer — Chairman & Chief Executive Officer>: Thank you.
Operator: We’ll take our next question from Paul Forward with Stifel Nicolaus.
<Q — Paul Forward — Stifel, Nicolaus & Co., Inc.>: Good morning and congratulations.
<A — Steven Leer — Chairman & Chief Executive Officer>: Thank you, Paul
<A>: Thanks, Paul.
<Q — Paul Forward — Stifel, Nicolaus & Co., Inc.>: I want to ask couple of things, you’ve seen the
mines, would you say there is going to be much spending across the ICG mines to kind of bring the
equipment levels up to the standards that Arch only has or is it a pretty well capitalized set of mines
that you’re buying here?
<A — John Eaves — President & Chief Operating Officer>: You know Paul, this is John. I got to
tell you, we were pleased with what we saw there in the mine business. I mean mines that looked
comparable to Arch’s, well capitalized for the most part. Obviously, we’ve got some capital dollars
we’ve got to spend on the Tygart No. 1 but overall, very pleased with the way their operations were
run, that the way they looked. Ben and his leadership team did a phenomenal job in running those
operations, and we’ll try to continue that.
<Q — Paul Forward — Stifel, Nicolaus & Co., Inc.>: All right and looking at, you’ve talked a lot
about met coal, just thinking about Central Appalachian thermal coal, the combined firm
somewhere in the territory of 13 million tons. I was just curious, as you look at that the expansion in
met, is there going to be a — through permitting or through depletion or other issues, is that 13
going to go down over time from where it is right now?
<A — John Eaves — President & Chief Operating Officer>: You know Paul, as we look at it. I
mean, certainly we hadn’t built any of that in. A lot of that would be market driven. I think what ICG
did, and they did it well, they managed their costs reasonably well. And I think they’ve got a cost
structure will — that will allow them to make good money in the thermal market, and that’s
something we’ll continuously evaluate. But right now, we’re pretty pleased with what we see from a
cost standpoint, a safety standpoint and assuming the thermal market demand continues to
develop, and we’re seeing a lot of opportunities in the international market and with our
infrastructure, it’s probably going to create some additional opportunities for the thermal exports as
well.
<A — Steven Leer — Chairman & Chief Executive Officer>: And Paul to your permit question.
They’re in a good shape with permits. The ICG reserves are
predominately and well, well beyond
majority focused on underground mine development and mines, and they’re in pretty strong shape. |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
13
They have one permit that they’re talking about for a small surface mine and we’d certainly like to
see that permit get fully issued, but it doesn’t have an impact on the deal dynamics.
<Q — Paul Forward — Stifel, Nicolaus & Co., Inc.>: Great and maybe lastly, I know the -
considering the focus on underground mining, the market for skilled labor today is pretty tight. I was
just curious how much of a consideration that was in deciding to do the transaction. Is there — is
that going to be part of your calculation on operating synergies, just to be able to hold on to skilled
workers or possibly not be in competition with one another for a scarce workforce?
<A — Steven Leer — Chairman & Chief Executive Officer>: I mean, let me say first, we were
impressed with all of the mine management that we saw during the diligence and yeah, there are
some opportunities in terms of where we were going back and forth and hiring people that we
should see the benefit from. But their turnover rate has been pretty good; they’re in pretty good
shape in terms of manning, as is Arch. So we would expect on a combined basis that we would
retain a talented workforce going forward. I mean we’ve always been pretty proud of our low
turnover rate and quite frankly, ICG had a comparable rate, so we would expect to continue that.
<A — John Eaves — President & Chief Operating Officer>: You know, we didn’t build in any deal
dynamics or economics on that kind of assumption, but there clearly is some.
<Q — Paul Forward — Stifel, Nicolaus & Co., Inc.>: Okay, great. Thanks very much.
<A>: Thanks, Paul.
<A>: Thank you.
Operator: Next we’ll hear from Garrett Nelson with BB&T Capital Markets.
<Q — Mark Levin — BB&T Capital Markets>: Hi, this is a Mark Levin; just a couple of quick
questions. One, and I think you guys answered, but I just wanted to make sure I’m clear, so on the
$70 million to $80 million of synergies I mean, is it a fair statement to say that the vast majority of it
is from blending opportunities or is that not right?
<A — John Drexler — Chief Financial Officer & Senior Vice President>: You know. Mark, I’d be a
little hesitant to break that out right now. I mean in total, between marketing, operating and G&A,
we think we can achieve that $70 million to $80 million, but I really wouldn’t want to get any more
detailed right now, I mean obviously, we’ll continue to update to you guys as we move forward, but I
think we see opportunities in all three, maybe slanted a little bit towards the marketing side.
<Q — Mark Levin — BB&T Capital Markets>: Got it. Okay.
<A — Steven Leer — Chairman & Chief Executive Officer>: It would not be a majority; the other
two buckets are larger than the marketing.
<Q — Mark Levin — BB&T Capital Markets>: Are larger than the marketing. Okay. And then my
second question, Steve, I mean when you guys look at sort of their reserve base, obviously ICO
owns a — or ICG owns a great percentage of their reserves more than most. Do you envision
opportunities to monetize some of these non-core reserves to bring cash in the door? Is there that
opportunity as well?
<A — Steven Leer — Chairman & Chief Executive Officer>: There is that o
pportunity; again, we
did not build that into the deal economics, but you’re exactly right, they own a tremendous amount
of the reserves in fee. I look at that as an opportunity, if it makes sense, I typically; it’s a little more
costly financing. As we look at the cash flow structure of the transaction, even over the next six |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
14
months and certainly on into 2012, the free cash flow is significant and that is not a requirement,
but it is one of those, if the markets would suddenly take a turn south or something would go wrong,
again that’s a — it’s a floor opportunity if we need to do it, but we’re not anticipating it at the moment.
<Q — Mark Levin — BB&T Capital Markets>: Got it. And then one last question, just as you kind of
think about maintenance CapEx per ton from sort of Arch’s core operations in Central App versus
ICG’s, do you see a big difference in terms of what the maintenance CapEx per ton might look like
going forward?
<A — John Drexler — Chief Financial Officer & Senior Vice President>: We really don’t; I mean I
think most of their mines are in pretty good shape, and it would be somewhat comparable of what
we’re seeing. So obviously, we’ll give more clarity on that as we get into the operations and
evaluate them. But based on what we’ve seen early on, we really don’t see a material dip.
<Q — Mark Levin — BB&T Capital Markets>: Okay. And then, I am sorry, go ahead.
<A — Steven Leer — Chairman & Chief Executive Officer>: I was just going to add, again and
John was trying to emphasize this, when you look at the public companies and you look at the cash
operating costs over the last year or two years, however you want to define it, ICG has done a
excellent job in managing their costs as has Arch, and typically we’re right on top of each other
barring something unusual like what we had at Mountain Laurel last quarter. But we’re right on top
of each other at cash costs and lead Central Appalachian low cost position.
So the natural extension of that is we’re approaching our mining very similarly, and again I think
when you think about the cultural fits in — it was kind of interesting in one of the mine diligence
teams, I mean the gentleman who is leading the effort from ICG’s side had worked for like threequarters
of the guys who have gone through from our side, and that’s — there’s just a good solid fit
here and we approach at the same way.
<Q — Mark Levin — BB&T Capital Markets>: Okay, one last question related to that. I know Ben
worked for Arch for some time and obviously has done a very, very good job with the operations. I
mean is there some opportunity to retain Ben to help to run those operations, those assets?
<A — Steven Leer — Chairman & Chief Executive Officer>: Right now the plans are not to. We’ve
been — both sides have been very focused on closing the transaction. I do think there’s an
opportunity for Ben to stay on as an advisor here for us for a period of time but he has indicated he
has some personal plans as well. So Ben’s done a great job in building this company and taking out
a group of assets. And as I said, really they’ve taken it very, very far. And with the combination, I
think allows us to accelerate and really take it to the next level of benefits to the overall
shareholders of the combined group here because they’ve — he should be proud of what his team
has achieved in assembling the assets.
And now we’re just in a position and I think Ben even mentioned on his call that really you need
size and scale anymore to deal with all of the issues that face the coal industry and to deal with
them well. And that a company of Arch’s size, combined with ICG, is better posi
tioned and can do it
at a lower cost than one that’s just ICG’s size. And we see that kind of trend line continuing.
Operator: And we’ll move next to Jim Rollyson with Raymond James.
<Q — James Rollyson — Raymond James & Associates>: Good morning, everyone.
Congratulations.
<A>: Thank you. |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
15
<A — Steven Leer — Chairman & Chief Executive Officer>: Good morning, Jim.
<Q — James Rollyson — Raymond James & Associates>: Steve, you’ve not been too shy about
talking about Central App over the last few years since you guys had kind of weaned yourself down
from where you were before to where you stand today. I think you’ve probably touched around this
answer, but just curious kind of how you rationalize getting back in a little heavier to Central App
just kind of given what your thought process had been. Is it the met excitement? Is it the fact that — I
think you touched the fact that their cost curve is pretty similar to yours, which you kind of view at
the lower end of the peers; and just kind of curious how you rationalize that?
<A — Steven Leer — Chairman & Chief Executive Officer>: Absolutely yes to each one of those. I
think what I’ve been saying over the last few years is that clearly we were interested in additional
met over time at the right kind of transaction. We’ve also been saying that our view of Central App
is that over the next five years or so that Central App would see a continued decline in overall
production, principally in the thermal market offset by some expansion in the metallurgical market,
but that Central App would stabilize and the numbers moved around a little bit, but let’s call it in that
120 to maybe 130 range of production somewhere 2015 with it predominantly been a met coal play
with ancillary or some steam production.
We still believe that’s accurate and true and we also believe and we’ve seen this occur, we think
with the most recent MSHA data that surface mining will continue to decline and that deep mine will
be the predominant production method. And I think this last go around with MSHA, the deep mine
production actually exceeded surface mine production for the first time.
So it’s within the same themes; I mean we have never said we were leaving Central App. We’ve
always made a significant income in Central App; some years have certainly been better than
others, again predicated if we look at the Mountain Laurel mine, now we look at the Tygart mine. I
see it as a continuation of our existing theme and we’ve been in that kind of 13 million to 15 million
ton of range production for years, and with the clean liability balance sheet, the production profile
on cost, I think it is a hand and glove fit.
<Q — James Rollyson — Raymond James & Associates>: Okay, makes sense. And then just as
a follow-up switching gears to the Illinois Basin, you guys have kind of had longer terms designs of
growth potential there, kind of taken baby steps if you will with the Knight Hawk investment and
obviously you haven’t ramped up the curve yet on your own production, But just kind of curious how
the marriage here might change your view or alter your plans or is it just kind of continuing down
the path you’re already on for development of the Illinois Basin?
<A — John Eaves — President & Chief Operating Officer>: Jim, this is John. Certainly their Viper
mine is well run. They’ve got good cost control, good margins; most of that coal is sold right now in
the marketplace. As we continue to permit our Lost Prairie reserve, we should have that permit over
the next quarter or two. That’s going to be a market driven decision on when and how we bring that
production on. We will not bring that production on without some good base load coal supply
agree
ments in place.
So I don’t know that we’ve had any real change in our strategy in Illinois. Certainly over the future,
it’s going to become a core operating region for Arch. But again, it will be market driven, whether
that’s domestic or in the international market. And as I said earlier, we think we have a true
competitive advantage from the fact that we have low-chlorine and higher BTU coals.
<Q — James Rollyson — Raymond James & Associates>: Fantastic. Thanks.
<A — John Eaves — President & Chief Operating Officer>: Thank you. |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
16
<A — Steven Leer — Chairman & Chief Executive Officer>: Thank you.
Operator: [Operator Instructions]. We’ll move next to Jeremy Sussman with Brean Murray.
<Q — Jeremy Sussman — Brean, Murray, Carret & Co. LLC>: Hi. Good morning and
congratulations.
<A — Steven Leer — Chairman & Chief Executive Officer>: Thank you Jeremy.
<Q — Jeremy Sussman — Brean, Murray, Carret & Co. LLC>: I’d like to focus on Tygart for a
second. First off, how big a role does this ultimate mine I guess, as low as your success at
Mountain Laurel, play in this transaction? And then secondly, can you give us a sense of what
margins you could see at Tygart in sort of today’s environment, given that it’s obviously going to be
a low cost mine? Thank you.
<A — John Eaves — President & Chief Operating Officer>: Jeremy, this is John. I mean clearly
that was an attractive part of this transaction. We think the development that Ben and his team
have done thus far on Tygart No. 1 has really positioned it well. It is comparable to the Mountain
Laurel operation. We had the Mountain Laurel team look at it, do to their own mine design. They’re
comfortable with what they are coming up with. It is a high-vol A product, it’s going to be very well
received in the market either on a standalone basis or on a blend basis with some of the coals that
we have at Arch.
So we’re excited about it. Beyond the 1, we think there’s tremendous opportunity in Tygart Valley
No. 2 and 3. And we will be working, as I said earlier, very aggressively on the permitting process
there to get that production in line, really with the met market obviously targeted there.
In terms of margins, I’d be a little hesitant to say anything right now given where we are. Clearly, we
think it’s going to be a very effective cost mine and we would plan to see it playing out that way
given what we’ve seen at Mountain Laurel, I think Steve mentioned in his comments, we’ve learned
a lot from Mountain Laurel; hopefully we’ll take the good and leave the bad behind and come up
with a very strong cost competitive mine at Tygart. But we’re excited about it. It clearly was one of
the drivers when we looked at the transactions.
<Q — Jeremy Sussman — Brean, Murray, Carret & Co. LLC>: Great, thank you very much. I
appreciate it and congratulations again.
<A — Steven Leer — Chairman & Chief Executive Officer>: All right, thank you.
Operator: We’ll hear next from Andre Benjamin with Goldman Sachs.
<Q — Andre Benjamin — Goldman Sachs & Co.>: Hi, good morning, guys.
<A — Steven Leer — Chairman & Chief Executive Officer>: Good morning, Andre.
<Q — Andre Benjamin — Goldman Sachs & Co.>: First, I was wondering could you please provide
a little bit of color about how this transaction satisfies your longer term goals both domestically
versus internationally? Are there any more bolt-on opportunities you’re seeing in Central
Appalachia, given the fragmentation? And also given you still have production internationally,
should we expect that to be the area that you potentially focus on the future as you look for more
deals?
<A — Steven Leer — Chairman & Chief Executive Officer>: Well, clearly, this transaction
combined with work — the dir
ection Arch was already heading in its export potential enhances the |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
17
export potential and we see it as a U.S. based international metallurgical and thermal coal play and
I think you’ll see us continue along those lines. As we develop these reserves in the mines, our
focus will be on the organic development of the existing 400 plus million tons of metallurgical coal.
Is there a small bolt-on or something out there? I mean we don’t have any designs that that will
occur but history would tell you that could occur and so we see that developing.
As we indicated in our call, we’re expecting to open up an international office here probably
sometime this quarter or certainly by next quarter, and helping us place the development of both
our met coal and thermal coal in the international markets. So we see the global shortfall continuing
out there, and we see this as strengthening Arch’s position to really help to supply that shortfall.
Beyond that, I’ve always had the view you shouldn’t communicate your underlying strategies to all
your competitors in the marketplace, because they can do things to thwart you. But we think where
Arch is heading is very good and there certainly won’t be any surprises to the investor base
because, again, let me reemphasis, this transaction, other transactions that we’ve done, I think we
have a history showing that when we look at a lot of potential transactions, we don’t do very many
of them because they simply can’t get through the — our filters of strong safety, strong
environmental, strong financially and again, given the intrinsic values here, that this is creating an
accretive — in 2012 moving forward on all financial parameters.
And our modeling shows it increases that accretive profile as Tygart 1 comes on, and frankly, we
will be doing everything we can to accelerate their permitting and the eventual development of the
other Tygarts and then the blending capabilities and port expansion. So I think, you’ll see us
focusing in those areas as much as anywhere. But stay tuned, it’s going to be a very good and
interesting decade I think.
<Q — Andre Benjamin — Goldman Sachs & Co.>: Thanks, that’s very helpful. And then, I guess
one follow-up question. As we look at the model of the pro forma company, in terms of blending
your met coals, have you determined what you expect the pro forma met coal quality mix to be
going forward? So should we expect you to take all the low-vol coal and blend that down to a midvol
and leave the rest to sell into high-vol or is there some other way we should be thinking about
it?
<A — John Eaves — President & Chief Operating Officer>: I think the marketing guys have done
a pretty good job in looking at that and it’s a little bit here, a little bit there. I don’t think we want to
disclose exactly what our blends are, but clearly, this transaction gives us a portfolio of products
that we haven’t had: low, mid and high vol A in addition to our PCI high vol B. That’s what we find
attractive about it. In terms of our specific blends, I’d be a little hesitant to get into that.
<Q — Andre Benjamin — Goldman Sachs & Co.>: Okay, thank you very much.
<A — John Eaves — President & Chief Operating Officer>: Thank you.
<A — Steven Leer — Chairman & Chief Executive Officer>: Thank you.
Operator: We’ll take our next question from Michael Dudas with Jefferies.
<Q — Michael Dudas — Jefferies & Co., Inc.>: Gentlemen, good morning. You’
ve addressed the
issues quite well in this conference call. I’m all set. Good luck, gentlemen.
<A — John Eaves — President & Chief Operating Officer>: Okay, Michael.
<A — Steven Leer — Chairman & Chief Executive Officer>: Thank you. |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
18
Operator: We’ll move next to Brandon Blossman with Tudor, Pickering Holt & Company.
<Q — Brandon Blossman — Tudor Pickering Holt & Co. Securities, Inc.>: Good morning
gentlemen.
<A — Steven Leer — Chairman & Chief Executive Officer>: Good morning, Brandon.
<Q — Brandon Blossman — Tudor Pickering Holt & Co. Securities, Inc.>: Steve, you mentioned
certainty to close as a benefit of doing an all cash deal. Are there other considerations of doing all
cash versus some equity? Was that an option?
<A — Steven Leer — Chairman & Chief Executive Officer>: Well, you know that was an option.
We’ve certainly walked into it with our eyes wide open and had a portfolio of approaches that we
considered. We see this as the most attractive to our shareholders and their shareholders. We’ll be
the first to say, when you look at equity as part of the transaction, I mean it is your most expensive
financing and we see the ability to use some equity to preserve the credit rating as important, but it
will be predominantly debt and it just ends up being an optimal structure.
And given the cash flow capabilities and the ability to delever the company, you’ll see significant
strides within 2011 from day one of the closing to end of the year, and then further significant
strides moving into 2012. And kind of think about it, a lot of that business is already in place so we
just think that works the best for all parties.
<Q — Brandon Blossman — Tudor Pickering Holt & Co. Securities, Inc.>: Okay. That’s very
helpful, and then kind of as a follow-on to that, will there be any change in port sale or hedging
strategies to delever?
<A — Steven Leer — Chairman & Chief Executive Officer>: I wouldn’t anticipate any fundamental
changes. We always are looking at the balance between our uncommitted coal versus our views of
the market versus any financial needs that the corporation may have. And that gets considered
almost daily, but certainly monthly and quarterly not only by Senior Management, but by the Board.
But the pieces are in place right now as we move forward through ‘11 and substantially in place in
‘12 so I wouldn’t anticipate many changes there.
<Q — Brandon Blossman — Tudor Pickering Holt & Co. Securities, Inc.>: Thank you very much
and congratulations on the deal.
<A — Steven Leer — Chairman & Chief Executive Officer>: All right, thank you.
Operator: We’ll move next to you Curt Woodworth with Macquarie.
<Q — Curt Woodworth — Macquarie Capital (USA), Inc.>: Hi, good morning everyone.
<A — Steven Leer — Chairman & Chief Executive Officer>: Curt.
<Q — Curt Woodworth — Macquarie Capital (USA), Inc.>: Steve, I was wondering if you could
provide a little bit more detail on the Tygart mine expansion in terms of what the quality composition
that mine will look like and estimated cash costs?
<A — Steven Leer — Chairman & Chief Executive Officer>: Well, I’ll let John answer that, he is
more attuned to it, than I’m but we’re probably not going to get into the exact cash costs, but.
<A — John Eaves — President & Chief Operating Officer>: Yeah, I mean I think ICG has been
pretty clear on how they laid out, they’re driving sl
opes now; they’re doing work. We think the |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
19
timeline that’s been outlined is very achievable. That shows you know development work within
continuous miners and then the long-haul coming on sometime in the first half of 2014.
We’re pretty comfortable with those forecasts. Our numbers indicate that it’s going to be very cost
competitive and certainly for the quality coal, not only going to be very desirable in the U.S. but
around the globe. So in terms of cash costs, I’d be a little hesitant to get into that right now, but
clearly, we think from a cost standpoint it will be one of the more competitive met mines in the
United States.
<Q — Curt Woodworth — Macquarie Capital (USA), Inc.>: Okay.
<A — Steven Leer — Chairman & Chief Executive Officer>: In terms of quality to on the high-vol
A, there’s extraordinarily high quality coal. And we’ve spent a lot of time over the last year studying
the high-vol A markets and looking at it and our real conclusion and perhaps shouldn’t be surprising
as people think about the reserve degradation over time of Central App as we’ve been mining there
as an industry for over a 100 years, we think there’s a lot less high-vol A and low-vol coal in the
U.S. than perhaps many might perceive. And again, as you move forward and look at that, this -
value of this reserve probably increases dramatically over time just given the nature of Central App
reserves. So again it accrues to — we didn’t build anything into our modeling in that, but that could
be significant upside as we progress through the rest of this decade.
<Q — Curt Woodworth — Macquarie Capital (USA), Inc.>: Great. And a follow-up question just on
the blending opportunity. Do you need to spend any additional capital either for more prep plants or
other types facilities you need to be able to blend up some of the B and do you have any indication
of right now how much of that material you could look to blend up? Thanks very much.
<A — John Eaves — President & Chief Operating Officer>: You know, ICG has about 15 plants
throughout their system, and obviously we’ll be looking for efficiencies in all those plants where we
can. But as we stand today, we don’t have to spend any capital to get the blending synergies that
we’ve forecasted in our model. So we think we’re in pretty good shape; anything we would get in
terms of efficiencies through the plant would be upside.
Operator: We’ll move next to Brett Levy with Jeffries & Company.
<Q — Brett Levy — Jefferies & Co., Inc.>: Hey, guys, can you talk about the situation with the
International Coal bonds? Do you anticipate T plus 50 tendering? Is there any out allowing you to
close some of the equity and use that maybe reduce your cost of taking out notes? And then I
suppose sort of a related, sort of transaction related question, is there a breakup fee here and if so
how much?
<A — John Drexler — Chief Financial Officer & Senior Vice President>: Hey, Brett, this is John
Drexler, as we look at ICG’s current notes, you’re correct there’s a make whole provision there.
We’ll be evaluating everything but the conclusion is that those notes will be coming out and we’ll be
taking them out through some type of structure. So we’ll be moving forward with that, continuing to
evaluate the best way to do that as we move forward.
From a breakup fee, we’re not going to get into that right now. We’ll be filing the M&A agre
ement
associated with the transaction with the SEC in the next several days and that’s where it will all be
spelled out, in the M&A agreement.
Operator: We’ll take our next question from John Bridges from J.P. Morgan.
<Q — John Bridges — JPMorgan Securities LLC>: Good morning, Steve, everybody.
Congratulations on the deal. |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
20
<A — Steven Leer — Chairman & Chief Executive Officer>: John.
<A — John Eaves — President & Chief Operating Officer>: Thank you.
<A — John Drexler — Chief Financial Officer & Senior Vice President>: Hi.
<Q — John Bridges — JPMorgan Securities LLC>: Just wondered, this deal sort of seems to
revolve around Tygart and its performance. I just wondered the level of due diligence that you’ve
been able to perform on that?
<A — Steven Leer — Chairman & Chief Executive Officer>: Go ahead, John.
<A — John Eaves — President & Chief Operating Officer>: John, this is John Eaves. When we
did our diligence, I think we were pleased with what we saw. I mean really over the next couple of
years, the real driver isn’t Tygart. I mean it’s got very cost effective, good quality coals and other
mines being Vindex, Sentinel, Beckley, I mean those are very cost competitive, real contributors to
the bottom line and we think not only over the next couple years, but will be for many, many years
to come. So really Tygart is kind of an add on to those three or four complexes that we were very
pleased with the performance and overall contribution that we found when we did our diligence.
<Q — John Bridges — JPMorgan Securities LLC>: Yeah, I guess following on for what Steve said,
there’s been such a degradation of reserve quality that it’s just surprising that something of this
quality has been left alone. Why is that?
<A — Steven Leer — Chairman & Chief Executive Officer>: John, I can’t answer that and that’s
why we’re sitting here today talking about it. Again, when you look at the intrinsic value of ICG and
why it — combining it with Arch, in my opening comments, I was trying to allude. I mean, we have
often stated we try to buy in the downside of our market cycle, and even consider selling assets in
an upside of the market cycle, and we’ve done that on a portfolio approach over the decades.
No one would pretend that met coal pricing hasn’t been strong. We anticipate it continues to be
strong moving over the next five years. But what we do see here is that ICG was at the cusp of a
major or, let’s call it, a low point of met coal production and they have a very strong asset base here
that we feel was being undervalued by the marketplace. We think Arch had been undervalued by
the marketplace given a very biased opinion and the combination helps unlock value for both
companies,
And I can’t explain why it wasn’t appreciated, but it’s a real credit to Ben, his senior team, the
shareholders of the Board of ICG, that they’ve been able to quietly put together what we consider
maybe some of the cleanest, highest quality met coal assets in the nation. In fact, I might make the
argument they’re the best of new mines or new opportunities as compared to — there is certainly
some great coal mines out there that are up and running that we all know about.
But — so it’s exciting. We went into this not expecting to find as good of results that we found from
mine development to the reserve base to again — Arch has — the combined company as being over
400 million tons of met coal and a complete product slate that only a handful of companies can
offer that broad slate across the board to really all the customer base out there that we see looking
for lots of met coal over the next
five to 10 years.
Operator: We’ll take our next question from Dave Martin with Deutsche Bank.
<Q — David Martin — Deutsche Bank Securities, Inc.>: Thank you. And I just had one remaining
detail question if you would. John Drexler, you mentioned earlier that you would likely take up the |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
21
convertible notes. I’m just wondering, therefore, what is the correct diluted share count we should
be using for ICG?
<A — John Drexler — Chief Financial Officer & Senior Vice President>: With the conversion, it’s
about 21 million shares. With the conversion — I think we’ve footnoted that in the presentation.
<Q — David Martin — Deutsche Bank Securities, Inc.>: Okay. Thanks and good luck.
<A — Steven Leer — Chairman & Chief Executive Officer>: Thank you.
Operator: We’ll hear next from Dave Katz from J.P. Morgan.
<Q — David Katz — JPMorgan Securities LLC>: Hi, yes kind of following on your earlier comment
that you would expect to delever quickly with the free cash flow, I guess it’s a two part question.
One in that — on the prior year, last conference call, you guys indicated that you would consider
mergers, organic growth and returning cash to shareholders; obviously you’re going to merger out,
but you’ve also raised the dividend recently. Is the entire use of free cash going forward, or at least
the majority, going to be for delevering? And does that mean that you’re going to favor a term loan
type structure which would allow you to prepay without a penalty?
<A — John Drexler — Chief Financial Officer & Senior Vice President>: As we look right now, it’s
strong and healthy free cash flows as we move forward. We’ll continue to evaluate, as we have, the
best use of those cash flows moving forward. As we’ve indicated throughout this call, our — we’ve
realized we’ll levering up somewhat here with this transaction and similar to prior transactions, our
focus will be on the balance sheet out the gates here. And we feel very comfortable that we’ll be
able bring that leverage down very quickly with the pro forma profile that we expect to see moving
forward.
But from a ultimate use of all cash flows as we move forward, we’ll continue to evaluate where we
think we’re able to create the most shareholder value and that covers that suite that you just
described there in your question and what we’ve described previously during our call.
<Q — David Katz — JPMorgan Securities LLC>: Okay. And then with regard to the tax rate of the
combined company, both effective and cash, how do you expect it to change as a result of the
transaction?
<A — John Drexler — Chief Financial Officer & Senior Vice President>: As we look on a pro
forma basis moving forward, our tax structure will continue to be very similar to the tax structure
that we have currently right now as we will continue to have significant deferred tax assets. And as
we’ve indicated, we’ll continue to be an AMT taxpayer moving forward with a rate that we expect
around 20%.
Operator: Our final question will come from Justine Fisher with Goldman Sachs.
<Q — Justine Fisher — Goldman Sachs & Co.>: Good morning.
<A — Steven Leer — Chairman & Chief Executive Officer>: Hi, Justine.
<Q — Justine Fisher — Goldman Sachs & Co.>: Just one more question on leverage to try and
phrase it another way. I know you guys have said that you can’t identify exactly how much debts
you might issue. But if I look back to the Jacobs Ranch transaction, it seems that you guys were
willing to take leverage up to about 3.5 times, albeit briefly, on
a pro forma basis. Is that the kind of
level that you guys are willing to go up to, and is that what the rating agencies have identified, if at
all, as a level that is sufficient to maintain your rating? |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
22
<A — John Drexler — Chief Financial Officer & Senior Vice President>: Justine, we’re not going
to get specific on what our targets are. I will say with the Jacobs transaction, if you look at the
financing structure that we did put in place we were focused on preserving our balance sheet
strength, but realizing we needed to do an equity component of that transaction as well. We will be
working with the agencies to make sure that any structure that we have moving forward will
preserve our ratings. But as we’ve indicated, it will be a majority of debt.
<Q — Justine Fisher — Goldman Sachs & Co.>: Okay. And then just one quick follow-up on the
CapEx plans too. Obviously we know what the combined budgets are for Arch and for ICG but in
terms of further developing ICG’s substantial reserves, if we’re thinking about additional CapEx for
that, is that kind of a second half 2011 expenditure that we should think of or is that more in the
2012 timeframe once you’ve done all the work with Tygart, et cetera?
<A — John Eaves — President & Chief Operating Officer>: Yeah, that’d be 2012 maybe even
2013 before we have a decision on that. Our focus is on Tygart Valley 1 right now, getting that up
and running, and look at what we can do in conjunction with that. But that’s going to be the focus of
the operating team right now.
Operator: That does conclude today’s question-and-answer session. I’d like to turn the call back
over to Mr. Steve Leer for any closing remarks.
Steven F. Leer, Chairman & Chief Executive Officer
Again, thank you for joining us today. I think you can tell by the tone of our remarks that we’ve
spent a lot of time on this. It’s not something that we undertook lightly. We think it is a very
significant transaction that positions Arch to be a global met coal and thermal coal power house
based out of the United States, serving the international and the domestic markets.
It’s accretive to EPS per share, EBITDA per share, cash flow per share of free cash flow 2012 and
beyond in our modeling. And that’s assuming the bonds convert — the convertible bonds are
converted to shares, all the options that ICG folks have are converted to shares. So we took a very
sober view of the transaction and came out with, you know, this — ICG has done a great job putting
together a group of assets that have enormous intrinsic value where the accretion increases as we
move forward over the next few years. But we start off in the first year with creating shareholder
value, which frankly not many transactions pass that kind of muster. And then when you have the
focus on safety, the focus on environmental responsibility, it’s just a singular good fit.
So we appreciate it. We look forward to closing the transaction reporting in more detail on some of
the things we discussed today, and we’ll certainly be transparent and communicative on realizing
the synergies, et cetera as we move forward. So thank you for your time.
Operator: Ladies and gentlemen, this does conclude today’s conference call. Thank you for your
participation. You may now disconnect. |
| corrected transcript
Arch Coal, Inc.
ACI
Acquisition of International
Coal Group, Inc by Arch
Coal, Inc Call May 2, 2011
Company Ticker Event Type Date
www.Cal lSt reet .com • 1-877-FACTSET • Copyr ight © 2001-2011 Cal lSt reet
23
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