Westmoreland’s takeover of Oxford gets proxy firm support

Ohio-based coal producer Oxford Resource Partners LP (NYSE: OXF) said Dec. 15 that Institutional Shareholder ServicesGlass, Lewis & Co. and Egan-Jones Proxy Services, three leading independent proxy advisory firms, have all issued reports recommending that Oxford unitholders vote for all of the proposals required to carry out recently announced transactions with Westmoreland Coal.

“We are pleased that these leading proxy advisory firms have indicated their support for the proposed transactions with Westmoreland, and we encourage all of our unitholders to vote FOR all proposals enabling us to conclude the transactions,” said Charles C. Ungurean, Oxford’s President and Chief Executive Officer.

Oxford’s board of directors strongly encourages all unitholders to vote their units for the proposals promptly to be sure their units are represented at the Special Meeting of Unitholders to be held on Dec. 23. Through this complex series of proposals, Westmoreland, a coal company based in Colorado, would effectively take over Oxford. 

Oxford Resource Partners, a master limited partnership (MLP) with Oxford Resources GP LLC (Oxford GP) as its general partner, markets its coal primarily to large electric utilities with coal-fired, base-load scrubbed power plants under long-term sales contracts. A mainstay customer is American Electric Power‘s Conesville power plant in Ohio. Oxford is headquartered in Columbus, Ohio.

Said Oxford in a Dec. 1 SEC filing about Westmoreland: “We believe Westmoreland has a strong management team with a proven track record of operating and improving mining operations, focused and disciplined growth, and cost reduction. The team is responsible for spearheading organic investments and strategic acquisitions, including the successful acquisition and integration of the Kemmerer Mine from Chevron in 2012 and the Canadian acquisition in 2014 [from Sherritt]. The Kemmerer Mine acquisition exceeded financial projections as a result of operational improvements, increased productivity and improved labor relations, and Westmoreland is ahead of schedule in transitioning the newly-acquired Canadian subsidiaries into its business. Westmoreland intends to opportunistically pursue acquisition opportunities that fit and extend its core business model. The transactions described in this proxy statement represent a continuation of Westmoreland’s successful growth strategy, providing it with a platform to implement a ‘drop-down strategy’ pursuant to which it intends to periodically contribute certain U.S. and Canadian coal assets into the Oxford MLP structure, allowing it to unlock significant value that is inherent in its stable cash flow generating business model, to the benefit of both Westmoreland shareholders and Oxford unitholders.

“The acquisition of Oxford GP by Westmoreland will transform Oxford into a ‘sponsored’ MLP with a parent that holds a stable of potential drop-down coal assets for acquisition, providing Oxford with a visible path to sustainable growth in distributable cash flow backed by long-term, cost-protected contracts with high-quality customers. The intent is to supplement such drop-down coal acquisitions with other appropriate coal acquisitions that can be accretive to per unit common unitholder distributions by Oxford.”

Said the Dec. 1 filing about why Oxford sought this deal: “In the last half of 2011, while experiencing increasingly difficult market conditions in the coal industry, we recognized that our financial condition going forward would require us to begin restricting and ultimately discontinue our distributions to unitholders. We paid our last full quarterly distribution in the amount of $0.4375 per unit (the minimum quarterly distribution under our partnership agreement (the ‘MQD’)) to all of our unitholders in February of 2012. Then, in May 2012, August 2012, and November 2012 we began and continued to reduce distributions to our unitholders. Since then, we have not been in a position to make and have not made any distributions. Additionally, pursuant to restrictions in our current credit facilities, we are prohibited from making distributions to our unitholders. Unless the proposals are approved, we believe we will not be able to pay distributions in the foreseeable future.

“Having conducted an exhaustive market-based process over the past three years in an attempt to identify a strategic alternative that provides value to our unitholders, the board of directors believes these transactions provide us with the best and only viable option going forward. Our board of directors believes that the transactions described in this proxy statement will create a stronger, more competitive and diversified company with greater potential for long-term growth and the resumption and regular payment of distributions. We also believe that the restructured company will be better positioned to seek out additional future acquisitions, fostering continued growth and the liquidity available to unitholders.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.