Consol Energy Scoops Up CNX Gas for $965 Million

Posted Mar 22nd 2010 11:50AM by Tom Taulli
Filed under: Deals, Competitive Strategy

Last week, the fourth largest U.S. coal producer, CONSOL Energy (CNX), agreed to pay $3.48 billion for the Appalachian natural gas properties of Dominion Resources (D). It was a major move to diversify its energy platform, picking up 1.46 million oil and gas acres and 9,000 producing wells. In all, CONSOL is expected to boost its natural reserves to about 3 trillion cubic feet and the potential reserve base will be about 41 trillion cubic feet.

However, the deal is not cheap and will require some financial maneuverings. For example, Monday CONSOL agreed to purchase its remaining 17% stake in CNX Gas (CXG) for $965 million.

This company is the primary holding of CONSOL's natural gas properties. And as part of this transaction, T. Rowe Price will tender its 9.5 million shares of CNX Gas. On news of this transaction, the shares are up 23.5% to $38.05.

But to pull things off, CONSOL needs an influx of capital. So the company has also announced it will issue at least $1.75 billion in new shares, as well as $2.75 billion in notes (with maturities in 2017 and 2020).

All in all, CONSOL is certainly being aggressive. Then again, the credit markets are loosening up again and the company is seizing the opportunity. Yet, the actions are weighing on the stock of CONSOL, with price down 4% in today's trading.

Tom Taulli advises on business tax preparation and is also the author of a variety of books, including The Complete M&A Handbook. His website is at Taulli.com.

Tags: CNX, Consol Energy, CXG, Dominion Resources, inthenews