Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(}function setPanelState(o){dom.root.classList[o?"add":"remove"](,dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

Peabody Energy has teamed up with ArcelorMittal to offer $5-billion for Australia's Macarthur Coal, the world's biggest producer of pulverized coal, as demand for steel-making raw materials intensifies.

The cash offer of $15.50 (Australian) a share represents a 40-per-cent premium to Monday's close and comes just a day after Australia unveiled a plan to tax carbon emissions from the nation's worst polluters, or about 500 companies, including coal miners.

It also comes amid a flurry of activity in takeovers involving Asia-Pacific companies, with at least four multi-billion-dollar deals announced on Monday alone, and marks further consolidation within the coal sector.

Story continues below advertisement

Macarthur, named after U.S. General Douglas MacArthur, made no recommendation on the proposal and said it would seek talks with Peabody and Arcelor on price and terms. The position of China's Citic, a key shareholder, was not immediately clear.

Macarthur was the subject of a three-way bidding war in 2010 when it agreed to enter talks with Peabody, the highest bidder with an $16 (Australian)offer. However, talks collapsed after Peabody cut its offer when the centre-left Labour government slapped coal and iron ore miners with a mining tax.

Analysts said there important differences this time round.

"Now they have Arcelor, which is actually a shareholder and they've locked away some pre-bid acceptances for the first time. That's got to give them more comfort," said CLSA Asia Pacific Markets mining analyst Hayden Bairstow in Sydney.

Peabody, already one of Australia's larger coal miners, is pursuing an aggressive growth strategy outside the United States and has committed to doubling its Australian presence.

ArcelorMittal, the world's largest steel company, meanwhile, is boosting its iron ore and metallurgical coal asset portfolio in an effort to ease the pain of rising fixed and raw material costs that have hit the entire steel sector.

"It is clear in (Arcelor's) strategy that they have to backward integrate, and that means getting more involved in metallurgical coal and iron ore mining," said analyst Scott Finlay at Daiwa Capital Markets in London.

Story continues below advertisement

"Macarthur is the world's biggest low volatile PCI producer, it has large resources in Queensland -- nice, simple open-pit operations - and low costs. It makes strategic sense to increase the stake."

PCI 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.

ArcelorMittal and Peabody said they would make their takeover proposal through a bid company, with ownership split 40 per cent and 60 per cent, respectively.

ArcelorMittal is the second-largest shareholder in Macarthur with a 16.2- per-cent stake, according to its website.

But the support of China's Citic, the largest owner with 24 per cent, will be critical, as the proposal is conditional on winning acceptances for more than 50 per cent of the company.

Citic Resources Australia, a unit of Citic, plans to study the proposal and has not yet taken a decision, its managing director told Reuters.

Story continues below advertisement

The timing of the offer caught some investors by surprise. The deal was unveiled just a day after the Australian government's new carbon levy, and as the company recovers from recent flooding of its mines.

Analysts, though, said the tax has long been expected in the market and was unlikely to weigh on the deal at current lofty coal prices -- unless the government begins to raise the levy.

"This deal looks opportunistic," said Tim Schroeders, a portfolio manager at Pengana Global Resources Fund. "The carbon tax was just announced yesterday and with Peabody's involvement again, investors will be cynical. They cut their offer right after another big tax last year," Schroeders said. He declined to say if he owned Macarthur shares.

Despite environmental concerns, the global market for coal is healthy, with prices for the pulverised coal mined by Macarthur trading at a narrowing discount to hard coking coal. Spot prices for coking coal and PCI, pulverized coal injection-type coal, have softened in recent weeks on the back of slower Asian demand, but this is expected to be a short-term blip.

In fact, the deal is a substantial bet on strong and steady demand in Asia, from China and India but also other countries where steel growth is forecast to be strong. Any big downturn would be bad news, as production would then get sold for power generation, at less than half the coking price.

It was unclear on Monday whether other suitors could step in to once again scupper Peabody's efforts. Australian miner New Hope said a year ago, after the takeover battle, that it was still interested in Macarthur.

Story continues below advertisement

Companies globally are searching for opportunities to put hefty cash piles to work and a slew of further deals were announced on Monday. Among the larger offers, Nestle, the world's largest food company, offered to buy 60 percent of Chinese candy maker Hsu Fu Chi International for about $1.7-billion and a group owned by Hong Kong's Li Ka-shing made a proposal for Northumbrian Water valuing it at £2.4-billion ($3.9-billion U.S.).

Macarthur shares, which closed at $11.8 (Australian) on Monday, peaked above A$21 in 2008.

The deal values Macarthur's 1.64 billion tonnes in reserves at nearly $3 (Australian) per tonne. Rio Tinto's purchase of Riversdale earlier this year valued its coking coal-dominated reserves at $0.49 (Australian) /tonne while Macarthur paid $1.68 (Australian)/tonne when it bought some coal mining assets a year ago, according to a report from Morgan Stanley.

Macarthur is being advised by JPMorgan, ArcelorMittal is being advised by RBC Capital Markets and Peabody has engaged UBS and Bank of America Merrill Lynch.

Report an error
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies