Australian coal miner Macarthur Coal Ltd. (MCC.AU) has rejected
a A$3.3 billion takeover approach from U.S. miner Peabody Energy
Corp. (BTU) and said it plans to press on instead with its planned
takeover of Gloucester Coal Ltd. (GCL.AU).
Analysts said Peabody's offer of A$13 a share was pitched too
low to succeed but could be an opening gambit aimed at preventing
the Gloucester deal proceeding ahead of a sweetened bid.
The offer for Macarthur, which has a market capitalization of
A$3.1 billion, is the latest in a steady stream of deals in
Australia's coal sector, which have seen the ranks of listed coal
players dwindle at the same time as resurgent Asian demand has been
driving up prices.
Brisbane-based Macarthur said the "indicative, non-binding and
highly conditional" offer from Peabody was not in the best
interests of its shareholders, offering only a 7.5% premium to its
closing price Tuesday of A$12.09 a share and not recognizing the
strong outlook for coal markets.
"Peabody's proposal is highly conditional and does not fully
value Macarthur and its significant growth prospects," Macarthur
Chairman Keith De Lacy said in a statement.
De Lacy said Macarthur still believes there are strategic and
operational benefits in its planned takeover of Gloucester, which
would also see it move to 100% ownership of the Middlemount mine by
purchasing the stake of Gloucester's majority owner Noble Group
(N21.SG).
The miner said it will proceed with a planned April 12 meeting
of its shareholders to seek approval for the Gloucester deal.
Macarthur is the world's biggest exporter of pulverized, or PCI
coal, which is used in the steel-making process. It has
traditionally sold most of its coal to steel mills in Japan and
South Korea, but last year also began selling to China as demand
from its traditional markets waned.
RBS Morgans analyst Tom Sartor said the Peabody bid was pitched
too low to succeed but that it might be designed to try to prevent
the Gloucester deal going ahead while Peabody prepares a higher
offer.
"It may just be the opening gambit that says 'we are here'
before they put in a more realistic number that forces Macarthur to
delay the Gloucester vote," he said.
Sartor said a bid pitched at A$16-A$17 a share would be a more
realistic offer for control of Macarthur.
Peabody said there was a strong rationale for combining
Macarthur's assets with its Australian coal mines.
"Peabody believes that its proposal can deliver a superior
outcome for all Macarthur shareholders and is disappointed with the
Macarthur board's initial reaction," the miner said in a
statement.
Key to Peabody's success or failure in this or any subsequent
bids will be the attitudes of Macarthur's three biggest
shareholders, who together account for 47.4% of the miner's
shares.
CITIC Group holds a 22.44% stake in Macarthur alongside
ArcelorMittal (MT) with 16.6% and POSCO (005490.SE) with 8.34%.,
according to Macarthur's annual report.
POSCO and ArcelorMittal bought their stakes for A$20 a share in
2008 as takeover speculation swirled around Macarthur, so look
unlikely to accept an offer of A$13 a share.
However, Peabody said it is offering the three big shareholders
the alternative of retaining their interests in Macarthur, which
would become a privatized company operated and controlled by
Peabody.
The U.S. group said it is in discussions with the three on its
proposals.
A spokesman for POSCO said the company was reviewing the Peabody
offer while a spokesman for CITIC Resources declined to
comment.
Macarthur said Peabody has already held talks with the three
shareholders on a proposal for them to retain their respective
interests in a privatized Macarthur.
Macarthur said it had been advised that at the current time
Peabody hasn't entered into any agreements with the three
shareholders.
One person familiar with the situation said Macarthur's planned
purchase of Gloucester, worth A$668.5 million when first announced,
had opened the door for approaches.
"The Noble-Gloucester deal dilutes shareholder value and opens
the door for third parties to offer superior solutions to
shareholders," the person said.
Gloucester Coal shares slumped as much as 14% in the wake of the
Peabody bid for Macarthur, as investors worried that the Macarthur
bid for Gloucester may not proceed.
Gloucester noted the Peabody bid but also that Macarthur was
vowing to press on with its offer and said it was continuing to
recommend the Macarthur offer to its shareholders.
Macarthur surged as much as 20% to A$14.50 as investors bet on a
higher offer emerging. Its shares closed up 16.2% at A$14.05.
Gloucester closed down 9.9% at A$9.00 and Macarthur ended up
16.2% at A$14.05.
Share prices for other listed Australian coal miners were also
up with Centennial Coal Co. (CEY.AU) ending 2.7% higher at A$4.26,
Whitehaven Coal Ltd. (WHC.AU) up 4.3% at A$5.13 and New Hope Corp.
(NHC.AU) rising 2.2% to A$5.17.
JPMorgan is advising Macarthur, while Rothschild is advising
Peabody.
A resurgent Chinese steel sector is driving strong demand for
PCI coal with some producers recently announcing they had secured
an 89% increase in prices in annual negotiations with
customers.
Peabody highlighted at the time of its 2009 annual results that
it believed Australia was well placed to capitalize on strong
growth in demand from Asia.
"Peabody believes China and India are structurally short of
metallurgical coal and will continue to turn to Australia for
imports," the company said.
Peabody has previously outlined projects that would
approximately double the amount of coal it exported from Australia
in 2009 by 2014. The miner sold a total of 22.3 million metric tons
of coal from its Australian operations in 2009.
Macarthur produced 4.6 million tons of coal in fiscal 2009 and
has given guidance for output of between 4.8 million and 5 million
tons in fiscal 2010.
-By Alex Wilson and Elisabeth Behrmann, Dow Jones Newswires:
613-9292-2094; alex.wilson@dowjones.com
(David Winning in Sydney contributed to this article)
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