CRN soared over +8% yesterday after confirming they were in talks with rival Peabody Energy around a potential merger of the 2 coal producers. These two companies have a combined market cap of around $10bn with CRN contributing ~$3.5bn, or 35% of the combined entity. The invasion of Ukraine by Russia has dramatically transformed the coal space, only 2-years ago Peabody warned markets that it might enter bankruptcy due to tumbling coal prices after the COVID pandemic crushed global demand – now they have net cash!
- We think a deal is a distinct possibility after CRN failed to reach terms with US Arch Resources Inc in May i.e. 2nd time lucky perhaps, they clearly believe a merger makes sense.
MM likes the risk/reward towards CRN around ~$2
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