Will M&A Activity Continue To Lift Coal ETFs?
The Market Vectors Coal ETF (NYSE: KOL), the largest and most liquid ETF tracking the coal sector, got knocked around a fair bit last month, but the more coal mergers and acquisitions could be just the elixir KOL needs to generate solid returns through year-end.
Peabody Energy (NYSE: BTU), the largest U.S. coal producer, appears to be finally getting its hands on Australia's Macarthur Coal after an on-again/off-again takeover saga that spanned more than a year.
Now KOL may be getting help from another takeover rumor. The ETF jumped about 5% on Wednesday on reports that Alabama-based Walter Energy (NYSE: WLT) is drawing interest from not one, but two foreign suitors.
In the case of Walter and its potential impact on KOL going forward, restraint should be exercised for several reasons. First, the company is merely KOL's 12th largest holding at 3.52% of the ETF's weight. Second, the “Walter is a takeover target” theme is known at this point. In July, hedge fund Audley Captial Advisors openly pushed Walter management to consider a sale.
Beyond that, look at who the London Times says is mulling a bid for Walter. Anglo American, which has a reputation for being tied to mega-mining deals and never pulling the trigger, and BHP Billiton (NYSE: BHP), the world's largest mining company.
Anglo is said to be weighing a $120-a-share offer, or $7.49 billion, the Times reported, but that's half what Audley said in July Walter is worth. Sources quoted by Bloomberg indicate Anglo American isn't likely to make a bid for Walter.
As a major coal miner rich with cash and one of the most acquisitive names in the commodities business, BHP Billiton makes sense as a Walter suitor, but that's just speculation at this point.
KOL is still home to solid fundamentals, but over the near-term this is a “buy the rumor, sell the news” ETF.