Leading steel maker Jindal Steel and Power (JSPL) has entered into a binding merger agreement to buy Canadian coal firm CIC Energy for Canadian dollar (CAD) 116 million (over Rs 600 crore) in an all cash deal.
As per the agreement,CIC will be merged with JSPL’s wholly-owned subsidiary,Jindal BVI Ltd and its existing shareholders would get CAD 2 per share for their outstanding shares in the Canadian firm.
“The consideration values the total equity of CIC Energy at approximately CAD 116 million on 58 million shares (including all common shares and excluding all options and all unvested warrants),” the Canadian firm said in a filing to the Toronto Stock Exchange (TSX).
Commenting on the deal,CIC’s Chairman and CEO Warren Newfield said,”In the current challenging economic and capital markets environment,we believe that this offer provides fair value for CIC Energy shareholders.”
However,a JSPL spokesperson declined to comment on the deal.
The deal would provide the Naveen Jindal-led firm access to CIC’s 2.6 billion tonnes of high quality thermal coal in Botswana,which will ensure long-term fuel security to JSPL’s power ventures,including that of subsidiary Jindal Power.
Following the announcement,JSPL shares were up 0.76 per cent at Rs 417.35 apiece on the BSE in the late afternoon trade.
Stating that its Board has recommended the deal to company shareholders,CIC said that it will convene a meeting of its shareholders on or before August 28 to consider and approve the merger.
The price offered by JSPL at CAD 2 per share to CIC shareholders is a premium of 65 per cent to the volume-weighted average trading price of the Canadian firm’s shares on TSX for last one month.
“The merger agreement provides for an outside date of October 9,2012 for the completion of the merger,” CIC said,adding that completion of the deal is subject regulatory approvals,including from government of Botswana — where it operates the coal mine.
Shares of CIC has shot up by over 11 per cent to CAD 1.570 per share on the TSX since July 18,when the Canadian firm had confirmed that it was in talks with JSPL for selling a controlling stake.
The Canadian firm has a mining-cum-power complex called Mmamabula Energy Complex in Botswana,Africa and its Mmamubala coal field is estimated to hold 2.6 billion tonnes of high thermal coal,mostly above 6,000 kcal/kg of calorific value.
According to the company website,CIC is working to begin production in next 3-4 years and thereafter,it will export up to 24 million tonnes of coal per year from the Mmamabula coal field.
The Canadian firm is also developing a coal-fired power plant and a coal-to-hydrocarbons project.
As part of its growth plans,JSPL,together with Jindal Power,has chalked out an ambitious target of having more than 25,000 MW electricity generation capacity by 2020 and the deal would provide the company a long-term source of coal.
Moreover,it may also take JSPL into coal trading as it already has coal mines in Indonesia,Australia,Mozambique and South Africa.
The announcement comes barely a week after JSPL terminating its contract with the Bolivian government to develop El-Mutun iron ore mines for about USD 2.1 billion due to issues related to natural gas supplies.
The project also included setting up of an iron ore pellet plant,a sponge iron plant and a steel mill in the Latin American country.
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