Both companies have signed an agreement to proceed with the merger through an $A545 million off-market scrip takeover offer by Gloucester for all shares in Whitehaven.

Whitehaven shareholders will receive one Gloucester share for every 2.45 Whitehaven shares they hold. Gloucester shareholders will continue to hold their existing ordinary shares.

Whitehaven’s directors said they will back Gloucester’s offer, including selling their own 74% stake, in the absence of a superior proposal.

The merged company will hold combined reserves of 190 million tones and resources of 922Mt with saleable production of 4.5Mt.

The company will hold existing operations Canyon, Sunnyside, Tarrawonga, Rocglen, Werris Creek, Stratford and Duralie; development projects Narrabri in the Gunnedah Basin and Clareval (at Duralie) in the Gloucester Basin; and a portfolio of exploration assets.

It will have a net cash balance of approximately $102 million, excluding equipment-finance lease liabilities of about $51 million.

The merger offers the companies coal-blending synergies, giving them the ability to mix Gloucester’s high-sulphur, high-ash thermal coal with Whitehaven’s low-sulphur, low-ash thermal coal.

The deal will also help the two producers spread risk through operational diversity and reliance on a variety of rail and ports.

It also increases the merged company’s market capitalisation and liquidity, giving the combined entity greater flexibility to pursue a wider range of growth initiatives.

“The two companies have complementary operating assets and development projects and the merged entity will be well positioned to deliver strong growth over the next five years,” Gloucester chairman Andy Hogendijk and Whitehaven chairman John Conde said in a joint statement this morning.

Upon completion of the merger, Conde will become chairman and Hogendijk will take-up a deputy chairman position.

Current Whitehaven managing director Tony Haggarty will become managing director for a “period of time”, before the role is moved to current Gloucester managing director Rob Lord.

All directors will join the new board.

The senior management team will be formed from the two companies’ existing management teams, with overlap of roles expected to be minimal.

The offer is subject to 80% acceptance by Whitehaven shareholders and Foreign Investment Review Board approval.

Under the deal, Whitehaven has agreed not to solicit alternative offers and if it breaks the deal, under certain circumstances, will have to pay $A4.5 million.

Gloucester has also entered into pre-bid acceptance deeds in respect of 19.9% of Whitehaven’s shares, under which Gloucester can require the relevant shareholders to accept the Gloucester offer.

Both companies have entered a trading halt, with Gloucester last trading at $3.28 and Whitehaven at $1.51.