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DOING SOME DIGGING A Lump of Coal

The battle continues to rage between FORDING and SHERRITT over who will control Canada's second largest coal produc...


The battle continues to rage between FORDING and SHERRITT over who will control Canada’s second largest coal producer. The Sherritt Coal Partnership swallowed Luscar, the largest producer, in 2001. Then in October 2002, the Sherritt Coal Partnership II made a bid for Fording Inc. It offered $29 per share, a deal that would have totalled $1.6 billion. The Fording board quickly rejected the offer, noting that shares were currently trading at $32.60. And Fording had just declared a quarterly dividend of $0.15 per share for its investors.

The situation quickly heated up. Fording was adamant that its shareholders not tender their shares to Sherritt. Instead, it offered to create its own coal income trust and pay out $3.00 per share. The board, said Fording president and CEO Jim Gardiner, believes "that the proposed conversion will unlock value for shareholders, provide a continued platform for growth, and maintain both a sound and flexible financial position.”

What one company proposed, the other opposed. Fording asked the Court of Queens Bench of Alberta to approve a special shareholders meeting on Dec. 20; Sherritt asked that it be delayed. Fording condemned Sherritt’s "delaying tactics". Fording announced on Dec. 4 that it had worked out a deal with TECK COMINCO and WESTSHORE TERMINALS to create a new, stronger Fording Income Trust and offered Fording shareholders $34.00 per share or conversion into trust units. On Dec. 12 Sherritt upped the ante, revising its offer to $35.00 per share. The next day it mailed a dissident proxy solicitation; Fording called it "detrimental".

While this board-level brouhaha may not be as exciting as a good staking rush, it deserves to be followed. Canadian coal sales generate more than $8 billion annually, and there are over 50,000 people directly employed by the producers. Sherritt, through the Luscar Energy Partnership, controls 55% of the coal production in Canada. Fording’s share is about 27%. Would there be economies of scale if Sherritt controlled 75-80% of Canada’s coal output? Should one corporation dominate such a large percentage of an industry? Which proposal is really in the best interests of the shareholders, not only now for its cash value but in terms of future earnings and dividends? If anyone has a crystal ball that can definitively answer these questions, please let us know.

This fight could go either way. Fording’s special meeting has been pushed back until Jan. 3, 2003. And the board said publicly that it would "study" Sherritt’s higher offer. The details of each proposal are on the web at www.fording.ca and www.sherritt.com. They both deserve careful study.


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