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Peabody’s bid for Macarthur collapes

May 20, 2010

“Peabody Energy’s plan to acquire Macarthur Coal for A$3.8bn (U$3.3bn) has collapsed after the Australian miner yesterday said it could not recommend a revised takeover offer that was unlikely to win support from its two largest shareholders.

Macarthur said that based on the price and the conditions of the proposal it could not recommend the Peabody offer to shareholders, adding that the board felt that there was ‘no basis for further engagement with Peabody on the terms of its current proposal’. The US coal group last week cut its cash takeover offer for Macarthur , the world’s biggest supplier of pulverised coal, from A$4.1bn to A$3.8bn, or A$15 per share.
It did not specify why the price was lowered but referred to its examination of Macarthur’s financial records and Australian plans to introduce a new 40 per cent tax on profits generated by resource companies starting in 2012.”

Source: Financial Times, May 19 2010

Observations:

  • The board of Macarthur, following the shareholders decided not to support the take-over. The board had set a 75% approval rate from shareholders, which was not met.
  • Macarthur shares had risen significantly as stock holders would get a good premium for the shares. Now that the bid from Peabody has collapsed, share price is returning to more realistic values.

Implications:

  • Citic, ArcelorMittal and Posco own just under 50% of the Macarthur shares. They are unlikely to approve any take-over that will threaten their position as buyers of the coal, which they need for their steelmaking activities. Obviously Peabody did not convince them on this point.
  • Although Peabody does not tell the Australian tax increase has forced them into moving away, it will certainly have affected the ease with which they accept the decision.

Note: in July 2011 Peabody made a new offer in cooperation with ArcelorMittal

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