Alpha Natural Resources and Foundation Coal: Old Friends

May 12, 2009

CoalSome deals take a while to come to fruition.

Alpha Natural Resources agreed on Tuesday to acquire Foundation Coal for $1.5 billion in an all-stock deal to create the third-largest U.S. coal producer.

But Alpha and Foundation have been in talks for several years over a possible combination, according to a source familiar with the situation.

Indeed, the two companies had been close to a similar deal last year, but Alpha chose to proceed with a proposed deal to be acquired by Cliffs Natural Resources deal instead, the source said. That planned $8.3 billion merger was terminated because of economic conditions and the objection of Cliffs’ biggest shareholder.

It seems likely that Foundation Coal was the “Company 2″ referred to in the registration statement filed by Cliffs last year.

According to the filing, Alpha and Company 2 opened talks in 2007 for the possible acquisition of Alpha by Company 2. By 2008, the roles had changed  — Alpha was offering to buy Company 2 in an all-stock deal, but the company’s board decided the Cliffs deal would be better for its shareholders.

Time will tell if it was worth the wait.

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