Poland coalminer JSW reportedly in merger talks with NWR

By bne IntelliNews February 29, 2012

bne -

A pair of Central Europe's largest coal miners is discussing a merger to form a regional giant, according to unconfirmed reports, although any deal appears to be some way off - if it were to happen at all.

According to The Daily Telegraph's unnamed sources in London, where NWR is listed, Polish coking coal producer Jastrzebska Spolka Weglowa (JSW) has been in talks with Czech tycoon Zdenek Bakala's BXR Group in recent weeks over a potential acquisition of the latter's Czech-based New World Resources (NWR).

However, BXR is reported to be less than enthusiastic about the talks, with one source apparently suggesting the company is "not spending a lot of time on it." That would tally with the plans that Bakala has outlined for his coal holdings, in which the 64% stake in NWR is the cornerstone. The group reincorporated in London last year as part of a long-term plan for international expansion, whilst Bakala - known as "the coal barron" in the Czech Republic - has made it clear where he sees the base of his investment value. "As I've always said, old fashioned, hard, unrestructured" assets make the best investment in Central and Eastern Europe, and coal, steel and mining are sectors that still "make a lot of sense today," he told Dow Jones in an interview last year.

The reports come just over a year ago since NWR's failed attempt to kick-start consolidation of the region's fragmented coal industry with a bid for Polish miner Lubelski Wegiel Bogdanka, which collapsed in acrimony amid accusations of Polish nationalism trumping economic sense. Speculation then was rife that the Polish government wanted to merge Bogdanka with JSW before any cross-border merger to give the Polish side more clout in any deal with a foreign firm; JSW subsequently was privatised. Although NWR's €857m hostile bid for Bogdanka failed, bne was already hearing talk then that NWR's true target in any case was JSW.

The main problem with the Bogdanka deal, as with most failed takeovers, was differing views on valuations - something that promises to plague future M&A takeover in the region's coal industry, reckon analysts. So Bakala will only be tempted into a sale if JSW is willing to pay top dollar. Reported sources claim BXR won't accept a cash valuation of less than £8.00 per share, which would value NWR at more than £2.1bn - a £700m premium to its current market value.

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