Shares of Walter Energy (NYSE:
), the Alabama-based maker of metallurgical coal, are up more
than five percent today on volume that is well above the daily
following press reports identifying the company as a takeover
Despite the fact that Walter is a top-10 holding in the Market
Vectors Coal ETF (NYSE:
), KOL is not getting much of bounce on the takeover rumors. The
ETF is higher by just 0.25 percent on volume that appears poised
to be well below the daily average of 289,000 shares.
Indeed, it can be said that at just over three percent of
KOL's weight, and as the ETF's tenth-largest holding, Walter
alone cannot move KOL's needle. That is one way of viewing the
situation and it is a fair perception.
There is more to the story. KOL and its constituents remain
embattled. The ETF has plunged seven percent since November 7,
the first trading day after President Obama was reelected. Coal
bulls had been hoping for win by Republican challenger Mitt
Romney. Obviously, that did not materialize and KOL has suffered
as a result.
Additionally, there are Walter-specific issues to consider
regarding why KOL is not jumping more today. Those go beyond
Walter's relatively small weight in the ETF. First, there was a
time when coal takeover rumors would have sent KOL soaring. A
good example would be 2010. Even for part of 2011, KOL would have
caught a nice one- or two-day bid on takeover rumors.
Times have changed for coal stocks and not in a good way.
Walter is one of the poster children for that ominous change.
Media reports say commodities giants Glencore (OTC:
) and BHP Billiton (NYSE:
) are interested in Walter. BHP Billiton, the world's largest
mining company, is mulling a $55 per share offer for Walter,
according to the Daily Mail.
An offer of $55 per share sounds great for a stock that
currently trades just north of $33, but it is a far cry from
previously rumored price tags for the company. Last year, the
Times of London
reported Anglo American (OTC:
) was mulling a $120-per-share offer for Walter. That would have
valued Walter at $7.49 billion, or more than 3.5 times the
company's current market value.
In another sign of just how far coal stocks have slid, in July
2011 hedge fund Audley Capital Advisors was pushing Walter
management to sell the company. At the time, Audley said Walter
was worth $240 a share.
Another possible reason why KOL has not caught fire on the
back of the Walter rumors is the alleged involvement of BHP
Billiton. Simply put, this is not new news. The Times reported
last year that BHP was a possible suitor for Walter. Said another
way, few rumors of large-scale mining and materials takeover
activity do not involve BHP.
It is not hyperbole to say that nearly everyone that follows
the materials sector knows that BHP CEO Marius Kloppers wants to
get a big deal done, particularly after missing out on Rio Tinto
) and Potash Corp. (NYSE:
) over the past several years.
The bottom line is Walter being a takeover is nothing new. The
only thing that has changed is the price a potential acquirer
would be willing to pay. Since that price is now well below what
it would have been 16 months ago, investors should not expect
much out of KOL on these rumors.
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