Western Coal Corp. Shares Surge



By: YOSEF TASTASSA  
Published: November 19th 2010
in Economics » Local

Western Coal Corp

The buy offer

 

Remember BHP Billiton? The company offered to buy Potash for nearly $40 billion and after three months withdrew its offer. Following rumours, market expectations and estimations only few good things came out of the BHP offer.

 

Today, Potash shares are worth $140, nearly 30 per cent higher than three months ago; Potash is much more famous and known all over the world as an excellent fertilizer manufacturer.

 

Early this morning it happened again, but by someone else and to another company. Walter Energy Inc. (NYSE - WLT) offered to buy Canadian Western Coal Corp. (TSX - WTN) for $3.3 billion. Walter Energy explained that it is bidding to buy Western Coal in order to get better access to commodities.

 

Walter Energy is an American company which operates in Tampa, Florida. The bid offer includes a pay in cash of $11.50 per share. Walter Energy also wishes to buy 19.8 per cent from Western Coal largest shareholder, Audley European Opportunities Master Fund Ltd., for $630 million.

 

Guess what happened when the offer was published to the public?

 

WLT and WTN shares today

 

Western Coal surged immediately to a daily peak of $11.15. Later on it lost few cents and the final closure was $10.85, $3.47 more than yesterday's closure which was "just' $7.38. The investors in WTN made 47 per cent in one day – The alchemy of the stock market is definitely working.

 

Walter Energy was also impacted by its own bid offer. The shares were traded at a wide range, from $92 - $97.25. The closure was $96.86, 2.27 per cent higher than yesterday's closure.

 

What do BHP Billiton and Walter Energy know?

 

The answers are probably in Asia. Large manufacturers need to expand their assets in order to sign long term agreements and also deal with the increasing demand in China and In India. In addition, when looking at the prices of coal they are 62 per cent higher than they were only a year ago.  

 

What's next?

 

The big question is: "Will there be another upside in Western Coal shares?

 

The answer is to look carefully at few things;

 

Will the bid offer occur? It seems that the chances are higher than in the Potash case.

 

Are coal prices high or low? It seems that they are high but may be much higher.

 

Can a merged company gain bigger profits? Probably yes.

 

Remember that after Potash surged over night to $140 per share it kept surging to $153, an upside of 10 per cent.

 

Should I buy shares?

 

Investing directly in shares is a very risky thing. Ask people who invested in 2008; they'll have many stories to tell you.

 

If you believe that the merging will occur, especially with the support of the major shareholder, than in the long term higher profits are possible due to the ability to commit in the long term and have a better access to the raw materials (coal).

 

Summary

 

Merging and buying are always great opportunities for investors. If you know enough about a certain sector, you may understand future processes in it including bid offers and merging. Usually, such offers make companies' shares very attractive; all you need is the right timing. For this reasons, negotiations for potential merging or buying are always discreet and are hidden from the public.

 

Those who are involved in these kinds of negotiations and use the information they have in order to get gains in the stock market may be prosecuted.

 

This article does not recommend buying any shares mentioned in it or any other shares.



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