Australia's Gloucester Coal said it had agreed to a merger with China's Yanzhou in a deal valued at some Aus$2.2 billion (US$2.3 billion) to create a major listed Australian coal firm.
The announcement followed a statement late Thursday from Yanzhou Coal Mining, China's third-largest listed coal miner by output, saying the tie-up reflected the company's ambition to grow its Australian business.
"Gloucester Coal has entered into a merger proposal deed with Yanzhou Coal Mining Company Limited and its wholly owned Australian subsidiary, Yancoal Australia Limited, following an approach from Yanzhou," Gloucester Coal said.
Under the proposal, Gloucester's assets, including coal mines in Queensland and New South Wales, will be combined with Yancoal's Australian assets, which also include coal mines and an interest in a coal export terminal.
Any deal, which comes amid consolidation in Australia's mid-tier coal sector, will require approval by shareholders, Australia's Foreign Investment Review board (FIRB) and is subject to due diligence by both parties.
State-owned Yanzhou had approached Gloucester, which has a market capitalisation of some Aus$1.44 billion (US$1.46 billion), after taking over Australian coal miner Felix Resources in 2009 in a deal worth US$3.2 billion.
Yanzhou had also reportedly been interested in Whitehaven Coal before that company announced a merger with fellow Australian miner, Aston Resources, to form an independent coal company worth Aus$5.10 billion.
Under the Gloucester deal, Yanzhou proposes owning 77 percent of the merged company, with the remaining 23 percent held by Gloucester shareholders.
Gloucester shareholders will receive Aus$700 million in cash in a special dividend equal to about Aus$3.20 for each share, meaning the total deal is valued at about Aus$2.2 billion, Dow Jones Newswires said.
Under the proposal, the board of the merged company will comprise six Yanzhou nominees and five independent directors agreed by Gloucester and Yanzhou, with the chairman to be one of the Yanzhou nominees.
The merger proposal is conditional on the merged company obtaining a listing on the Australian Securities Exchange (ASX) but already has the approval of Gloucester's major shareholder Noble Group, Gloucester said.
Gloucester said Noble intends to vote its 64.5 percent stake in favour of the merger proposal, subject to the deal's approval by Noble's board of directors and in the absence of a better proposal.
If successful, the reverse takeover will help Yanzhou to fulfil a commitment it made to Australian regulators when it acquired Felix Resources in 2009 to float at least 30 percent of its Australian assets by late 2012.
Australia's coal industry is dominated by major global players BHP Billiton, Rio Tinto and Xstrata, but smaller firms are being targeted as competition for resources is stoked by rapid industrialisation in China and India.
US-based Peabody Energy, the world's largest private coal miner, snapped up Australia's Macarthur Coal in November in a deal worth almost Aus$5 billion.
Gloucester shares, which last traded at Aus$7.03 before being placed in a trading halt, rose on the news to be at Aus$8.78 at about 0130 GMT.