Under the terms of the proposal, Gloucester shareholders would be given $3.20 in cash and the option to receive either shares in the merged company or a combination of shares and contingent value rights (CVR) through a scheme of arrangement.
The merged companies would have a strong presence in the Hunter Valley of New South Wales, with combined coal production of 15 million tonnes per annum.
The merger would value Gloucester at $2.1 billion.
In a statement, Yanzhou Coal chairman Li Weimin said the merger plan “reflects the company’s strategy to grow our Australia business and to become a global leader in the coal mining sector”
Yancoal’s assets are a 100% interest in the Austar coal mine, a 90% interest in the Ashton Coal joint venture, an 80% interest in the Moolarben JV, a 100% interest in the Yarrabee coal mine, a 15.4% interest in the Newcastle Coal Infrastructure Group and a 5.6% interest in the Wiggins Island coal export terminal.
Yanzhou announced the 11 directors at its December 22 board meeting had unanimously agreed to approve the merger of Yancoal and Gloucester.
“After completion of the confirmative due diligence and upon amending and improving the transaction framework and the specific terms with the counterparty, the company will hold a board meeting to finally approve the merger,” its statement said.
Gloucester issued a statement saying: "The Gloucester directors believe that a combination of Gloucester and the Yancoal assets has the potential to create a world class coal production and export operation".
The merger is conditional on the new entity obtaining a listing on the Australian Securities Exchange and remains subject to shareholder approval, with 75% approval required from Gloucester shareholders.
The Gloucester directors have not yet recommended accepting the proposal but Noble Group, Gloucester’s largest shareholder with 64.5%, has indicated it would vote in favour of the merger.
The merger would also provide Yancoal with a backdoor listing on the ASX.
Yanzhou must float off 30% of Yancoal as one of the conditions imposed by the Foreign Investment Review Board when it bought Felix Resources for $3.2 billion in December 2009.
“Upon completion of the merger proposal we will have made a significant step toward meeting all the undertakings including a listing of Yancoal core assets,” Yanzhou said.
The $3.20 cash per Gloucester share is made up of a special dividend of approximately $0.564 per Gloucester share payable after court approval of the merger but prior to the effective date of the merger and a capital return of approximately $2.644 per Gloucester share.
The merged company would pay the former Gloucester shareholders who participate in the merger – and who elect to receive CVR shares as a component of their consideration – a settlement that seeks to guarantee Gloucester shareholders a minimum price.
