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. Last Updated: 07/27/2016

Mechel Unit Buys Out Share Issue

A subsidiary of Mechel bought all of the preferred shares it placed last week in a move that analysts said could facilitate the acquisition of U.S. rival Bluestone Coal, the Russian coal and steel producer said Friday.

On Wednesday, Mechel sold 138.8 million preferred shares at their face value of 10 rubles each, or about 1.4 billion rubles ($42 million) to Skyblock Ltd., and now they are effectively treasury shares, Mechel said.

The company, Russia's largest coking coal producer, was planning to use newly issued preferred shares to pay for the acquisition of Bluestone Coal, a source said in February.

In addition to the shares, Mechel was to pay $425 million to the owner of the miner, the James Justice family.

A Mechel spokesman declined to provide any additional details on the placement.

Troika Dialog metals and mining analyst Sergei Donskoi said there were a range of possible scenarios should Mechel ultimately complete the reported deal.

"My base case scenario is that they will issue 80 million shares to the James Justice family," Donskoi said.

He said the remaining preferred shares could be sold on the market at a later date or retained as treasury stock, though it was also possible that the Justice family could have renegotiated the deal to receive a larger stake.