Post on 22-Jan-2018
August 2011
P E A B O D Y - C L O U D P E A K M E R G E R P I T C H
Arame Niang and Joseph L. Reynolds
S T
R I C
T L
Y
P R
I V
A T
E
A N
D
C O
N F
I D
E N
T I A
L
P E A B O D Y E N E R G Y
H:\Summit Coal Pitch (Arame and Joseph).pptx
This presentation was prepared exclusively for the benefit and internal use of the J.P. Morgan client to whom it is directly addressed and delivered (including
such client‟s subsidiaries, the “Company”) in order to assist the Company in evaluating, on a preliminary basis, the feasibil ity of a possible transaction or
transactions and does not carry any right of publication or disclosure, in whole or in part, to any other party. This presentation is for discussion purposes only
and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by J.P. Morgan. Neither this presentation nor
any of its contents may be disclosed or used for any other purpose without the prior written consent of J.P. Morgan.
The information in this presentation is based upon any management forecasts supplied to us and reflects prevailing conditions and our views as of this date, all
of which are accordingly subject to change. J.P. Morgan‟s opinions and estimates constitute J.P. Morgan‟s judgment and should be regarded as indicative,
preliminary and for illustrative purposes only. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy
and completeness of all information available from public sources or which was provided to us by or on behalf of the Company or which was otherwise reviewed
by us. In addition, our analyses are not and do not purport to be appraisals of the assets, stock, or business of the Company or any other entity. J.P. Morgan
makes no representations as to the actual value which may be received in connection with a transaction nor the legal, tax or accounting effects of
consummating a transaction. Unless expressly contemplated hereby, the information in this presentation does not take into account the effects of a possible
transaction or transactions involving an actual or potential change of control, which may have significant valuation and other effects.
Notwithstanding anything herein to the contrary, the Company and each of its employees, representatives or other agents may disclose to any and all persons,
without limitation of any kind, the U.S. federal and state income tax treatment and the U.S. federal and state income tax structure of the transactions
contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to the Company relating to such tax treatment and
tax structure insofar as such treatment and/or structure relates to a U.S. federal or state income tax strategy provided to the Company by J.P. Morgan.
J.P. Morgan's policies on data privacy can be found at http://www.jpmorgan.com/pages/privacy.
J.P. Morgan‟s policies prohibit employees from offering, directly or indirectly, a favorable research rating or specific price target, or offering to change a rating or
price target, to a subject company as consideration or inducement for the receipt of business or for compensation. J.P. Morgan also prohibits its research
analysts from being compensated for involvement in investment banking transactions except to the extent that such participation is intended to benefit investors.
IRS Circular 230 Disclosure: JPMorgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters
included herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing
or recommendation by anyone not affiliated with JPMorgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S.
tax-related penalties.
J.P. Morgan is a marketing name for investment banking businesses of JPMorgan Chase & Co. and its subsidiaries worldwide. Securities, syndicated loan
arranging, financial advisory and other investment banking activities are performed by a combination of J.P. Morgan Securities LLC, J.P. Morgan plc,
J.P. Morgan Securities Ltd. and the appropriately licensed subsidiaries of JPMorgan Chase & Co. in EMEA and Asia-Pacific, and lending, derivatives and other
commercial banking activities are performed by JPMorgan Chase Bank, N.A. J.P. Morgan deal team members may be employees of any of the foregoing
entities.
This presentation does not constitute a commitment by any J.P. Morgan entity to underwrite, subscribe for or place any securities or to extend or arrange credit
or to provide any other services.
P E
A B
O D
Y
-
C L
O U
D P
E A
K
M E
R G
E R
P
I T
C H
Agenda
Page
P E A B O D Y E N E R G Y
H:\Summit Coal Pitch (Arame and Joseph).pptx
1
Peabody overview
1
Cloud Peak overview 6
Summit Coal™ 11
P E
A B
O D
Y
-
C L
O U
D P
E A
K
M E
R G
E R
P
I T
C H
P E A B O D Y E N E R G Y
H:\Summit Coal Pitch (Arame and Joseph).pptx
Peabody Energy overview
Peabody Energy (NYSE:BTU) is the
world's largest private-sector coal
company, serving 330 customers on
six continents
Peabody products fuel approximately
10 percent of America's and 2
percent of the world's electricity
Peabody Energy‟s mission is to be a
leading worldwide producer and
supplier of sustainable energy
solutions
Develop projects that provide a reliable, low-cost supply of energy
Promote balanced energy policies and provide industry leadership in developing
clean coal technologies
Use our assets and expertise to develop and protect the natural, human and
societal resources in the communities where we operate
Create skilled, high paying jobs and a safe work environment
Operational overview
Peabody sustainability
2 P E
A B
O D
Y
O V
E R
V I E
W
P E A B O D Y E N E R G Y
H:\Summit Coal Pitch (Arame and Joseph).pptx
40
45
50
55
60
65
70
75
7/2
6/2
01
0
8/2
6/2
01
0
9/2
6/2
01
0
10
/26
/20
10
11
/26
/20
10
12
/26
/20
10
1/2
6/2
01
1
2/2
6/2
01
1
3/2
6/2
01
1
4/2
6/2
01
1
5/2
6/2
01
1
6/2
6/2
01
1
Source: FactSet, Company filings, Equity research
Market data as of 7/25/11
Stock price performance
Public market overview
$ mm
Price
60.58
52 week high
73.95
% of 52-week high
81.9%
Shares outstanding
270.6
Equity value $16,390.5
Total debt
2,750.0
Minority interest & preferreds
0.0
Cash
1,103.7
Firm value $18,036.8
2011 2012 2013
Sales 8,156.5 9,055.5 9,371.7
% growth
11.0% 3.5%
EBITDA 2,375.9 2,831.2 2,791.5
% margin 29.1% 31.3% 29.8%
EBIT 2193.425 2012 2013
% margin 26.9% 22.2% 21.5%
EPS 2193.425 1006.156 1006.649
Trading multiples 2011 2012 2013
FV/EBITDA 7.6x 6.4x 6.5x
P/EPS 0.0x 0.1x 0.1x
Public market overview
3 P E
A B
O D
Y
O V
E R
V I E
W
P E A B O D Y E N E R G Y
H:\Summit Coal Pitch (Arame and Joseph).pptx
Research analyst recommendations
“We reiterate our Buy-rating, as Peabody continues to have the best
organic growth profile and be the best-positioned to benefit from strong
Asia met and thermal coal fundamentals of companies under coverage.
We viewed positively BTU‟s confirmation its Queensland mines are fully
operational and organic growth projects continue to progress. Potential
catalysts for outperformance include continued strong met/international
thermal prices/contracting, sustained or increased Asia/European coal
imports, and greater clarity on medium term growth opportunities not
currently in our estimates.
-Goldman Sachs, 7/20/2011
“Peabody remains well positioned to benefit from the growth in
emerging economies, through both its current growth initiatives as
well as the moves it is making for longer-term growth projects in
the pipeline, most notably developing deposits in Mongolia and
China. Given Peabody‟s growing met leverage, increasing
exposure to the world‟s hottest coal markets, and recent pullback
we reiterate our Outperform rating and our target price of $75.”
-Raymond James, 7/20/2011
Firm Date „11 Recommendation Target price
Premium to current
Stifel Nicolaus 07/25 Buy 74 22%
Dahlman Rose & Co 07/25 Buy 84 39%
Raymond James 07/21 Outperform 75 24%
FBR Capital Markets 07/21 Outperform 76 25%
Goldman Sachs 07/20 Buy/attractive 75 24%
Brean Murray Carret & Co 07/20 Buy 81 34%
Howard Weil Inc 07/20 Market perform 75 24%
Iberia Capital Partners LLC 07/20 Outperform 80 32%
BMO Capital Markets 07/19 Outperform 77 27%
Deutsche Bank 07/19 Hold 70 16%
Credit Suisse 07/19 Outperform 80 32%
BB&T Capital Markets 07/19 Buy 75 24%
Atlantic Equities LLP 07/19 Overweight 75 24% Credit Agricole Securities (USA) 07/19 Underweight 64 6%
Citi 07/18 Buy 77 27%
JPMorgan 07/11 Restricted
(100%)
RBC Capital Markets 06/17 Outperform 86 42%
Median 75.0 24%
Mean 75.5 6%
Select analyst targets Selected research commentary
76%79%79%84%84%
17%12%12% 17% 19%
Aug-11Jun-11Apr-11Feb-11Dec-10
Buy Hold
Research sentiments
4 P E
A B
O D
Y
O V
E R
V I E
W
P E A B O D Y E N E R G Y
H:\Summit Coal Pitch (Arame and Joseph).pptx
67.256.7
64.257.1
8660
73.9540.79
0 10 20 30 40 50 60 70 80 90 100
Price per share in USD
Source:
Valuation summary
52 week range
Analyst price Targets
FV/EBITDA 2011E
FV/EBITDA 2012E
5 P E
A B
O D
Y
O V
E R
V I E
W
Agenda
Page
P E A B O D Y E N E R G Y
H:\Summit Coal Pitch (Arame and Joseph).pptx
6
Cloud Peak overview
6
Peabody overview 1
Summit Coal™ 11
P E
A B
O D
Y
-
C L
O U
D P
E A
K
M E
R G
E R
P
I T
C H
P E A B O D Y E N E R G Y
H:\Summit Coal Pitch (Arame and Joseph).pptx
Cloud Peak Energy: Corporate overview
Business Overview Locations of Mining Operations
Cloud Peak Energy Inc., a Delaware corporation organized on July 31, 2008, is a holding company that manages CPE
Resources.
On December 15, 2010, Cloud Peak Energy Inc. completed the Secondary Offering, resulting in CPE Resources
becoming a wholly-owned subsidiary of Cloud Peak Energy Inc.
Headquartered in Gillette, WY, Cloud Peak energy is among the largest producers of coal in the U.S.
In 2010, it was named by Mine Safety and Health Administration as having one of the lowest employee injury rate.
Cloud Peak Energy operates some of the safest mines in the industry.
It operates solely in the Powder River Basin and for this reason metallurgical coal isn‟t produced. Steam coal is
produced and is primarily consumed by electric utilities and industrial consumers as fuel for electricity generation.
In 2010, the coal produced by Cloud Peak Energy generated approximately 4% of the electricity produced in the
U.S.
In 2010, Cloud Peak Energy produced 95.3 million tons of coal.
The following condensed diagram depicts the organizational structure of the company as of December 31, 2010:
Strong Liquidity
Expansion possibilities
the company is in the process of expanding the
permitted mining capacity through the LBA process
Low legacy liabilities
The company only operates surface mines. For this
reason, its exposure to liabilities are relatively low
Significant past investment in facilities and equipment
The company has invested $371 million in its
mining since 2006 .
Senior management has long experience with Cloud
Peak mines.
Long customer relationships
Some Positives
Source: Cloud Peak Energy Inc. 10 K, equity research
7 C L
O U
D
P E
A K
O
V E
R V
I E
W
P E A B O D Y E N E R G Y
H:\Summit Coal Pitch (Arame and Joseph).pptx
13
14
15
16
17
18
19
20
21
22
23
24
25
7/2
6/2
01
0
8/2
6/2
01
0
9/2
6/2
01
0
10
/26
/20
10
11
/26
/20
10
12
/26
/20
10
1/2
6/2
01
1
2/2
6/2
01
1
3/2
6/2
01
1
4/2
6/2
01
1
5/2
6/2
01
1
6/2
6/2
01
1
Source: FactSet, Company filings, Equity research
Market data as of 7/25/11
Stock price performance
Public market overview
$ mm
Price 23.11
% of 52-week high 93.6%
Shares outstanding 60.9
Equity value $1,406.9
Plus: Total debt 60.0
Plus: Minority interest 0.0
Less: Cash 0.3
Firm value $1,407.1
2011 2012 2013
Sales 1,469.0 1,565.9 1,693.1
% growth 6.6% 8.1%
EBITDA 337.6 346.0 419.9
% margin 23.0% 22.1% 24.8%
EBIT 229.6 277.5 310.4
% margin 15.6% 17.7 % 18.3%
EPS 1.8 1.8 2.6
Trading multiples 2011 2012 2013
FV/EBITDA 4.2x 4.1x 3.5x
P/EPS 12.8x 12.6x 8.8x
Public market overview
8 C L
O U
D
P E
A K
O
V E
R V
I E
W
P E A B O D Y E N E R G Y
H:\Summit Coal Pitch (Arame and Joseph).pptx
“
“We maintain our positive stance towards the US thermal coal
market, which we believe will tighten over the next 12 months due
to quickly rising exports and continued US supply constraints, even
with weak US consumption. CLD shares are trading at 4.3x 2012
and 3.5x 2013 EBITDA…In our view this transaction should serve as
the catalyst to close that valuation gap. We reiterate our Outperform
rating.”
Credit Suisse, 5/12/2011
Research analyst recommendations
Selected research commentary Select analyst targets
“In short, while we expected CLD to win the LBA, the purchase price
was a big positive surprise. Cloud Peak was the sole bidder on the
property…. could represent an important milestone for
CLD, which trades at a material discount to other coal producers, in
part because of the short reserve life and in part because excess cash
flow must be allocated toward reserve purchases rather than share
repurchases, dividends, etc.”
BB&T Capital Markets, 5/12/2011
Broker Date Recom. Target
price Premium to current
Dahlman Rose & Co 07/25/11 Hold
(100%)
Johnson Rice & Co 07/22/11 Equalweight (100%)
Raymond James 07/21/11 Outperform 26.0 13%
FBR Capital Markets 07/21/11 Outperform 28.0 21%
Brean Murray Carret & Co 07/14/11 Hold (100%)
Credit Suisse 07/14/11 Outperform 26.0 13%
Howard Weil Inc 07/13/11 Market perform 24.0 4%
Iberia Capital Partners LLC 07/08/11 Outperform 30.0 30%
IPOfinancials.com 07/05/11 Buy (100%)
BMO Capital Markets 06/05/11 Market perform 22.0 (5%)
BB&T Capital Markets 05/13/11 Hold (100%)
Simmons & Co International 05/08/11 Neutral 25.0 8%
RBC Capital Markets 05/05/11 Sector perform 25.0 8%
Tudor Pickering & Co 03/03/11 Buy 28.0 21%
Median 26.0 6%
Mean 26.0 (28%)
“Cloud’s winning PRB reserve bid is a positive for the stock, in
our view. .. bid will effectively add 12 years to the life of its flagship
Antelope mine.. The winning bid comes at a 23% lower cost than
we had modeled, reducing Cloud’s capex requirements by ~$75 mm
vs. our estimate. Reserve funding is cheaper than expected;
positive implications for next round of LBAs.”
Morgan Stanley, 5/12/2011
44%40%43%46%46%
57%54%54% 60% 56%
Aug-11Jun-11Apr-11Feb-11Dec-10
Buy Hold
Research sentiments
9 C L
O U
D
P E
A K
O
V E
R V
I E
W
P E A B O D Y E N E R G Y
H:\Summit Coal Pitch (Arame and Joseph).pptx
20 26
22 28
22 30
15 25
0 5 10 15 20 25 30 35
Price per share in USD
Source:
Valuation summary
52 week range
Analyst price Targets
FV/EBITDA 2011E
FV/EBITDA 2012E
10 C L
O U
D
P E
A K
O
V E
R V
I E
W
Agenda
Page
P E A B O D Y E N E R G Y
H:\Summit Coal Pitch (Arame and Joseph).pptx
11
Summit Coal™
11
Peabody overview 1
Cloud Peak overview 6
P E
A B
O D
Y
-
C L
O U
D P
E A
K
M E
R G
E R
P
I T
C H
P E A B O D Y E N E R G Y
H:\Summit Coal Pitch (Arame and Joseph).pptx
Summit Coal™ will be that largest coal producer in the United States
Mines in the PRB would have
access to BNSF and UP
railroads.
Access to many equipment that
is already owned.
Peabody will be able to develop
relationships with new domestic
utility companies and industry
plants.
Peabody will in the future fuel
more electricity generated in the
U.S..
Peabody‟s footprint in the PRB
would be expanded.
This would make Peabody
become a more reliable
source of thermal coal.
Increase the amount of mines
Peabody has in the U.S.
Competition in the PRB would
lessen for Peabody.
Peabody would have an
easier time acquiring more
coal reserves through the
LBA process.
New Customers Access to new materials
Competition Geographic Expansion
12 S U
M M
I T
C
O A
L ™
P E A B O D Y E N E R G Y
H:\Summit Coal Pitch (Arame and Joseph).pptx
Cloud Peak geographically diversifies Peabody in the US
Source:
Source: http://maps.google.com/maps/ms?authuser=0&vps=23&hl=en&ie=UTF8&oe=UTF8&msa=0&msid=208590207111999002120.0004a99b33c6839fa2085
13 S U
M M
I T
C
O A
L ™
P E A B O D Y E N E R G Y
H:\Summit Coal Pitch (Arame and Joseph).pptx
Height: 4.75”
Width: 8.84”
Horizontal: 1.33”
Vertical: 2.00”
Existing railways cut down on Cloud Peak to Peabody transportation time
Source: http://transportationfortomorrow.com/final_report/volume_3_html/technical_issues_papers/images/paper2d_01_img_1.jpg
14 S U
M M
I T
C
O A
L ™
P E A B O D Y E N E R G Y
H:\Summit Coal Pitch (Arame and Joseph).pptx
Peabody Cloud Peak Total
sales ($mm) 8,156.5 1,469.0 9.625.5
Percentage of total sales 85% 15%
Peabody
Met Coal
5%
Thermal
Coal
95%
Peabody / Cloud Peak: Illustrative combination impact
Peabody Cloud Peak Total
Thermal Coal (tons) 212.6 96.9 309.5
Met Coal (tons) 12.0 0 12.0
2012 Sales
Summit Coal
Thermal coal
96%
Met coal 4%
2012 Coal Production
Cloud Peak
Thermal
Coal
100%
Percentage of type of coal produced
15 S U
M M
I T
C
O A
L ™
P E A B O D Y E N E R G Y
H:\Summit Coal Pitch (Arame and Joseph).pptx
Merger would benefit Peabody‟s domestic thermal coal industry
Peabody Coal Production Cloud Peak Thermal Coal Production In Each Mine
Percentage of shipped tons of coal by state of
destination during 2010
A merger would allow Peabody to have access to
all of Cloud Peak‟s coal reserves which consist of
mainly thermal coal.
A merger would also allow Peabody access to a
wider range of thermal coal customers in the
United States.
16 S U
M M
I T
C
O A
L ™
P E A B O D Y E N E R G Y
H:\Summit Coal Pitch (Arame and Joseph).pptx
Acquisition financial breakdown
Four
(in millions)
Cash 1,103.7
Equity Value
16,390.5
(in millions)
Firm Value 1,407.1
Allocate Funds Raise Debt
17 S U
M M
I T
C
O A
L ™
P E A B O D Y E N E R G Y
H:\Summit Coal Pitch (Arame and Joseph).pptx
Acquisition financial breakdown cont‟d
Equity Value
302.2
21%
Cash
403.7
29%
Debt
701.2
50%
Cloud Peak FV Breakdown
Cloud Peak Firm Value
1,407.1 mm
18 S U
M M
I T
C
O A
L ™
P E A B O D Y E N E R G Y
H:\Summit Coal Pitch (Arame and Joseph).pptx
Should Peabody merge with Cloud Peak?
Our answer:
19 S U
M M
I T
C
O A
L ™