Peabody has offered an all-cash deal that, combined with the assumption of some debt, is worth a bit more than $1.5 billion in total. That's not a massively robust premium to Excel's recent price (about 10% more than the trailing one-month average), nor does it appear expensive relative to Excel's coal reserves and production targets.
In the big picture, it's not a tremendously important deal for Peabody. True, Excel is expected to boost its production from about 5.6 million tons last year to perhaps more than 15 million tons next year, but Peabody produces more than 60 million tons a quarter. All the same, Excel does produce a fair bit of metallurgical coal, is geographically much closer to high-demand markets like India and China, and will boost Peabody's Australian production volumes more than 50%.
Only time will tell whether this is the beginning of a consolidation move in the coal industry. After all, there have been rumors about James River
It's rarely a great idea for individual investors to try to play the M&A guessing game, but if large buyers think they might be seeing value in the sector, it may be time for another look. Just remember, though, that even a staple commodity like coal can experience some pretty dramatic ups and downs -- and take its stocks along for a wild ride as well.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).