CHAPTER 1 INTRODUCTORY CASE HISTORY

• Jurisdiction: United States

Mergers and Acquisitions of Natural Resources Companies
(Nov 1994)
CHAPTER 1
INTRODUCTORY CASE HISTORY
Richard E. Pierce, Jr.
Tracy A. Stevenson
Kennecott Corporation
Salt Lake City, Utah
F. Robert Reeder
Parsons Behle & Latimer
Salt Lake City, Utah

The presentation will provide an anecdotal, inside view of Kennecott's reentry into the coal business through the acquisition, by merger, of NERCO, Inc. in 1993.

The speakers will begin by setting the business context of the transaction. There will be a brief recounting of the events leading up to the parties' agreement to initiate negotiations. This will include a discussion of the strategic and economic underpinnings of Kennecott's decision to reenter the U.S. coal business, and why the acquisition of NERCO's coal assets was consistent with such strategy.

Against this background the presentation will then turn to the deal itself. The speakers will frame the discussion around the business goals of the parties, which, for the purposes of this synopsis, can be summarized as follows:

A. Kennecott

i. To acquire NERCO's western coal assets through a structure that afforded Kennecott the right to confirm the value implicit in the preliminarily agreed upon share price, including the ability to ascertain potential exposures whether disclosed in the public filings or otherwise, with attendant "walk rights."

ii. To obtain coverage (indemnity) as against certain liabilities attendant to operations and properties other than the western coal operations.

iii. To have the ability during the executory period of the merger agreement to facilitate the subsequent divestiture of non-coal assets.

B. NERCO

i. To sell the company with sufficiently narrow "walk rights" so as to ensure that the deal would be essentially complete upon execution of the merger agreement, with closing a formality...