The Deal: Consol Energy Sells Coal Mines for $3.5B to Focus on Gas
The price includes $850 million in cash, $184 million in future payments - from royalties, water treatment plants and tolling fees at its Baltimore coal export terminal - and $2.4 billion in assumed liabilities, the biggest being $2.1 billion in postretirement benefit plans. Consol expects to book a $1.3 billion pre-tax gain in its fourth quarter from the sale if it closes by year-end.
While the company also is cutting its dividend in half, it expects to use the cash toward its natural gas development projects, with a 30% production growth goal for 2015 and 2016 from the 23% to 32% orginally targeted for next year. Consol expects its gas production to reach 210 billion to 225 billion cubic feet equivalent, 7% to 8% of which will be higher-value liquids or condensates.
"While this transaction furthers Consol's E&P growth strategy, the sale of these five mines - assets that have long contributed to America's economic strength and our company's legacy - was a very difficult decision for our team," Consol chairman and CEO J. Brett Harvey said in a statement. "In the end, we concluded that the time had come to sell these mature assets to ownership whose strategic direction is more aligned with those mines."
On a conference call with analysts and investors, management said the sale had been in the works for about six months and that the company had reached out to 28 bidders, including international and U.S. companies and private equity firms. But Consol management said Clairsville, Ohio-based Murray ended up being the clear winner, primarily because of the assumption of liabilities, even though others offered more or all cash, including one that, at the last minute, was trying to trump Murray's bid.
Management said the company has two other asset packages on the block that are close to completion, all non-core natural gas assets, and may consider others. It also may split its natural gas and its remaining coal assets into separate companies and is looking at spinning its pipeline business into a master limited partnership.
Analysts at Simmons & Co. International said the announcement didn't come as a surprise, as the company had indicated it didn't believe it was receiving full value for the coal assets in its stock price, and is a positive for streamlining the company.
"Some investors may be disappointed in the magnitude of the cash portion of the transaction," they said. "However, we believe it is critical to include the legacy liability payments in the transaction value and the divestiture seems to screen attractively at first glance when including those payments."