Home > Mergers & Acquisitions > Peabody in new Macarthur move

Peabody in new Macarthur move

July 13, 2011

“Peabody Energy of the US has joined forces with steelmaker ArcelorMittal to make a A$4.7bn (US$5bn) bid for Macarthur Coal, the Australian coal miner that was at the centre of a failed three-way bid battle last year. With Chinese-driven demand for coal pushing up prices, Peabody is attempting to expand overseas. ArcelorMittal is seeking to buy mines to secure its steelmaking ingredients at reasonable prices. Macarthur is the world’s top exporter of a coal variety that is one of the hottest commodities in metals and mining. Macarthur received the indicative cash offer of A$15.50 a share on Sunday. It is conditional on the bidding consortium securing at least 50.01 per cent of the target’s shares.

Peabody made a A$15-a-share bid last year but the deal collapsed when it failed to secure backing from Macarthur’s board. At that time, ArcelorMittal and China’s Citic – Macarthur’s two biggest shareholders respectively owning 16 and 24 per cent – indicated they were unlikely to approve the takeover.”

Source: Financial Times, July 11 2011

Observations:

  • Peabody’s previous bid, which collapsed in May 2010, was made conditional on Macarthur’s board approval, which in turn was made conditional on 75% of the shareholder votes supporting the deal. ArcelorMittal, Posco, and Citic, controlling almost 50% of the shares, were afraid to lose contract rights and therefore did not support the deal at the time.
  • The $15.5/share bid holds a 40% premium over the share price prior to the announcement. The share price dipped in June to the lowest point in more than a year driven by low Japanese demand.

Implications:

  • ArcelorMittal ensures long term access to the coal from Macarthur and probably also other Peabody operations by taking a 40% stake in the deal. If the acquisition is successful the company makes an important step in becoming more self-sufficient in its raw material needs by integrating vertically.
  • Peabody would add approximately 25% of its size with the acquisition, and would make a big step to expand operations internationally. As Macarthur is one of the key suppliers of China’s coal demand it might happen that China’s steel industry, led by Citic, will try to outmanoeuvre ArcelorMittal by making a competing bid.

Note: on July 14th this offer was sweetened

©2011 | Wilfred Visser | thebusinessofmining.com

Advertisements