CALGARY, Alberta (Reuters) - Fording Canadian Coal Trust FDG_u.TO units tumbled 10 percent on Monday as investors worried that its takeover by Teck Cominco Ltd TCKb.TO could be derailed by the U.S. credit crisis.
Merrill Lynch MER.N, part of a syndicate providing Teck with a hefty credit facility for the $14.1 billion deal, has agreed to be taken over by Bank of America Corp (BAC.N) amid financial industry tumult that prompted a big drop in equity markets on Monday.
It is not known if Bank of America supports Teck’s takeover of Fording, which would give it full control of Canada’s Elk Valley partnership, a major producer of metallurgical coal.
Fording units sank C$9.27 to C$81.83 on the Toronto Stock Exchange, which is below even the cash portion of Teck’s offer to Fording unitholders.
“The market is betting that this deal isn’t going to happen right now,” Desjardins Securities analyst John Hughes said.
In July, Teck offered $82 in cash and 0.245 of a share for each Fording unit it did not already own. Teck has a 20 percent stake in Fording and 40 percent of Elk Valley, operator of the Western Canadian coal mines.
Merrill Lynch and two other U.S. banks, as well as three Canadian financial institutions, agreed to provide a credit facility worth nearly $10 billion for the deal.
“There’s a lot of uncertainty in the banking group, and without the debt side firm and in place this deal is in jeopardy,” Hughes said.
An official with Teck was not immediately available for comment. The Canadian miner’s shares fell C$2.37, or 6 percent, to C$36.64 in Toronto,
Bank of America’s $50 billion takeover of Merrill Lynch would create the biggest U.S. bank so far.
But investors were less than enthusiastic over the deal, fretting it would magnify the suitor’s exposure to risky debt in a fragile economy.
The weakness was thrown into full view by rival bank Lehman Brothers Holdings’ LEH.N bankruptcy filing on Monday.
Reporting by Jeffrey Jones; editing by Rob Wilson