UK Coal likely to reject investment fund's approach

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The Independent Online

UK Coal, the FTSE 250 energy company, has received an approach for its coal and power generation businesses, which could be worth as much as 400m.

The suitor is a Channel Islands-based investment fund, Meinl International Power, which is owned by the Austrian investment group Julius Meinl. The offer was made last week in a letter to Jon Lloyd, the chief executive of UK Coal, sent by Karl Heinz Grasser, the former Austrian finance minister and current chairman of Meinl Power Management. However, it did not contain any mention of price, and is likely to be brushed aside by the management today.

If the offer was successful, it would in effect leave UK Coal as a property company. The group is split into four divisions deep mines, surface mines, renewable energy, and land & property. The latter runs under the name Harworth Estates and comprises some 47,500 acres of land and numerous development opportunities across the country.

The Austrian fund was laun-ched last year with a view to building up a portfolio of energy and energy-related businesses across central and eastern Europe. However, it is now starting to look at assets on the western side of the Continent.

After a difficult time in recent years, UK Coal, formerly known as RJB Mining, has been on an upwards trajectory in recent months. The business has struggled in the past due to a number of fixed-price contracts with energy providers, which tied it down to selling its coal well below market price. But as these have started to unwind, the group has begun to unveil new contracts which are at, or much closer to, the market price. The price of coal has more than doubled over the past 18 months.

Two weeks ago, the company staved off the closure of its Thoresby colliery, as it signed a four-year deal with EDF Energy. Without the deal, the colliery was set for closure within 18 months. The group also sealed a major deal with EON earlier this year, and is set to renegotiate terms with its third largest customer, Drax, during the second quarter of next year.

The group has also found fortune via its property portfolio, which has rapidly increased in value in recent years. At its latest valuation, it was deemed to be worth in the region of 400m, and is predicted to be worth some 900m by 2012.

The approach from Meinl is not the first that the group has had over the past few years. Two years ago, the company received an approach from Alchemy, the private equity group. But in spite of extensive talks, no formal bid emerged. Seven years ago, the company also entered into talks with Renco, the mining to car manufacturing conglomerate.

Shares in the company have fallen sharply since hitting highs of 600p in April. They closed down another 1.5 per cent on Friday at 382.5p, giving the company a market value of 601m.

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