Peabody Energy and ArcelorMittal have won over Macarthur Coal with a sweetened $4.9-billion (Australian dollars; $5.2-billion U.S.) takeover offer, after a rival bidder failed to emerge for the Australian coal miner.
The higher bid appears set to seal the latest in a flurry of coal deals in Australia, with Chinese, Indian and global firms snapping up mines best positioned to feed booming demand from Asian steel mills.
Macarthur caved in at an offer well below what it pressed for earlier in August, after fending off four takeover attempts in three years and opening its books to other potential suitors.
“They’re bowing to the inevitable, really,” said Peter Chilton, an analyst at Constellation Capital Management.
Top U.S. coal miner Peabody and ArcelorMittal raised their offer for the world’s biggest producer of pulverized coal by 3 per cent to $16 (Australian) a share.
The new offer is 44 per cent above Macarthur’s last trade on July 11, the day the initial approach was announced.
The latest bid includes a $0.16 a share dividend for a total offer value of $16.16.
Eighteen Australian dollars “may have been an aspirational target, but there comes a time when you have to face reality unless there’s lots of other bidders at the table,” Chilton said.
After Peabody and ArcelorMittal completed their review of Macarthur’s books, Macarthur said on Aug. 1 it would be willing to recommend a $16-a-share offer on condition it would be raised to $18 a share, if the suitors won more than 90 per cent acceptances.
Peabody and ArcelorMittal rejected that proposal, and Macarthur has now caved in, trapped in part by the recent share market turbulence and investor concerns about global growth.
“People are more nervous about China and coal, following the correction in share markets. That also influences what people are prepared to do,” said Chilton.
Macarthur’s shares rose just $0.07 to $15.87 on Tuesday, indicating investors do not expect any higher bid to emerge.
“Although it remains possible that a superior proposal might be made, none have emerged to date and there can be no assurances that any will emerge,” Macarthur said in a statement.
At $16, Peabody and ArcelorMittal’s offer was pitched around 33 per cent above CLSA’s valuation of the company, in line with typical takeover premiums, CLSA analyst James Stewart said.
Macarthur had said a number of other parties were taking a look at the company, but did not name the potential bidders.
China’s Citic Group, its biggest shareholder with a 24.5 per cent stake, said 10 days ago that it was considering its options.
Miner Anglo American was one of the parties looking at its books, three sources with direct knowledge of the situation had told Reuters.
Anglo American declined to comment on whether it was looking at Macarthur Coal.
Investment bankers said most major miners had been expected to take a look at the company’s books even if they did not intend on bidding.
Peabody and ArcelorMittal, the world’s top steel maker, went hostile on Aug. 1 after failing to secure an agreed deal with Macarthur’s board.
The board representative for Citic Group was not part of the latest resolution, Macarthur said.
Citic, which owns its stake partly through its listed arm Citic Resources, could be a stumbling block to the new offer, although Peabody only needs 50.1 per cent of acceptances and could still do a deal without its support.
ArcelorMittal owns 16 per cent of Macarthur.
South Korean steel maker POSCO, Macarthur’s third-largest shareholder with a 7.25 per cent stake, declined to comment on Tuesday’s announcement.
Under the agreement, Macarthur must cease any talks and close its books to any potential suitors.
Either party walking away from the deal will have to pay a break fee of $48.3-million.
The bid for Macarthur is a substantial bet on strong and steady demand in Asia, particularly from China and India, where steel production is booming.
“This is a major step forward in our acquisition process,” Peabody Energy Chief Executive Gregory Boyce said in a statement.
Macarthur is the world’s biggest producer of pulverized, cleaner-burning coal and has been a takeover target as Asia’s rapid industrialization has created insatiable appetite for the steelmaking commodity.
ArcelorMittal first approached it about a potential bid in 2008.
PCI – or pulverized coal injection – coal, which is crushed into a fine powder and injected into blast furnaces, is used as a replacement for coke in the production of pig iron.
JPMorgan is advising Macarthur on the deal, while UBS and Bank of America Merrill Lynch are advising Peabody. RBC Dominion Securities is advising Arcelor.
