Peabody, Arcelor go hostile in $5.2 billion bid for Macarthur

SYDNEY Mon Aug 1, 2011 3:09am EDT

A man walks next to handling and processing equipment at Macarthur Coal's Coppabella mine, about 760km (472 miles) northwest of Brisbane, in this undated handout photograph made available July 12, 2011. REUTERS/Macarthur Coal/Handout

A man walks next to handling and processing equipment at Macarthur Coal's Coppabella mine, about 760km (472 miles) northwest of Brisbane, in this undated handout photograph made available July 12, 2011.

Credit: Reuters/Macarthur Coal/Handout

SYDNEY (Reuters) - Peabody Energy and ArcelorMittal launched a hostile A$4.7 billion ($5.2 billion) bid for Macarthur Coal after the Australian target's board said the approach undervalued the company and it was working on attracting a rival offer.

Peabody (BTU.N), the largest U.S. coal company, and ArcelorMittal (ISPA.AS), the world's top steelmaker, have been courting Macarthur MCC.AX to secure its resources of pulverized coal, a key steelmaking ingredient, but talks to get the backing of Macarthur's board collapsed over the weekend.

"Macarthur was not willing to engage (the bidders) on customary terms even with Peabody and ArcelorMittal's willingness to improve the price," Peabody said. "We have decided to take this attractive offer directly to Macarthur shareholders."

Macarthur earlier on Monday refused to back what it called an "opportunistic" offer from Peabody and 16 percent-shareholder Arcelor, and said it was talking to a number parties concerning a rival offer.

Potential acquirers included the likes of Xstrata XTA.L, Anglo American (AAL.L), Vale (VALE5.SA), BHP Billiton (BHP.AX) and Rio Tinto (RIO.AX), a source familiar with the situation said.

However, it was unclear whether any of those companies would make a rival bid. Investors were not betting on a substantially higher offer on Monday although shares in Macarthur closed 1.8 percent higher at A$15.83, slightly above the Peabody offer.

"I struggle to see anyone else coming in," said CLSA Asia Pacific Markets mining analyst Hayden Bairstow in Sydney.

"If Peabody get to 50 percent, they will get there. Because last time it didn't happen and the stock went back to $10 there will be a few more people willing to accept this one," Bairstow said, referring to last year's ultimately failed bidding war for Macarthur.

CITIC ROLE

Macarthur is the world's biggest producer of pulverized, cleaner burning coal and has been a takeover target for over a year as Asia's rapid industrialization has created insatiable appetite for the steelmaking commodity.

The board representative for key Macarthur's largest shareholder, Citic Resources (1205.HK) has taken a temporary leave of absence, to avoid any "future actual or potential" conflict of interest, reviving speculation that Citic too may be interested.

Citic had been a major stumbling block in 2010, when Macarthur was the subject of a three-way bidding war. It agreed to talk with Peabody, the highest bidder with an A$16 offer but those talks collapsed after Peabody cut its offer when the center-left Labor government slapped coal and iron ore miners with a mining tax.

The latest deal will see Peabody and Arcelor offer A$15.66 per share directly to shareholders after the Australian firm rejected their conditional offer for an increase to A$16.00.

The offer, which includes a dividend payment of up to 16 cents a share, was in line with a preliminary proposal it made in June.

Macarthur said it was not willing to close the door to talks with other suitors at that price, instead asking for a conditional price increase to A$18 per share if it was backed by 90 percent of shareholders.

JPMorgan is advising Macarthur, UBS and Bank of America Merrill Lynch are advising Peabody and RBC Capital Markets is advising Arcelor. ($1 = 0.910 Australian Dollars)

(Editing by Balazs Koranyi and Lincoln Feast)

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