Investors wary on prospect of Macarthur bid war

SYDNEY/LONDON Mon Aug 22, 2011 9:32pm EDT

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SYDNEY/LONDON (Reuters) - Investors saw little immediate prospect that rivals would challenge Peabody Energy's (BTU.N) bid for Macarthur Coal MCC.AX, though sources familiar with the matter said potential suitor Anglo American (AAL.L) was studying the books.

Sources familiar with the matter said on Monday that Anglo, one of Australia's top coal producers, was among suitors looking at Macarthur's finances.

But they said it would not necessarily move forward with an offer to challenge the $5 billion bid currently on the table from long-time suitor Peabody and partner ArcelorMittal (ISPA.AS), which owns 16.1 percent of Macarthur.

The sources played down newspaper reports of a possible tie-up between Anglo and China's Citic, Macarthur's biggest shareholder, as premature, though analysts and others in the industry said that would be a good move from Anglo if it was to move forward and succeed in beating Peabody's offer.

Citic (1205.HK) has not declared where it stands on the bid, despite market speculation it is opposed to Peabody's offer and could back a rival suitor. It has held talks with the Peabody camp, one of the sources said.

Citic has a 24.6 percent stake and was a major stumbling block in 2010, when Macarthur was the subject of a three-way bidding war that also included Peabody.

It agreed then to talk with Peabody, the highest bidder, but those talks collapsed after Peabody cut its offer when the Australian government introduced a mining tax.

Both Macarthur and Anglo American declined to comment.

Macarthur shares closed up 2.7 percent at A$15.74 on Monday, just above the Peabody offer of A$15.66 per share, including a 16 cent dividend.

Macarthur shares hit a high of A$15.94 when Peabody went hostile on August 1, but the stocks have faltered in recent weeks after a rival offer failed to materialize.

Anglo shares were up 0.6 percent at 1530 GMT, just ahead of a 0.4 percent rise in the broader UK mining sector.

Several other sources familiar with the deal said Anglo was likely one of a number of parties looking at Macarthur after advisers opened a data room to drum up interest in a rival bid.

"There is a lot of pressure on the (Macarthur) board to make something out of this ... I'm sure there is somebody in the data room but the question is how serious are they and if it is Anglo, they look at everything," one source said.

Other potential suitors for Macarthur, the world's largest producer of seaborne pulverized coal, include the likes of majors Xstrata XTA.L, Vale (VALE5.SA) and Rio Tinto (RIO.AX), with Rio and Xstrata seen as possible eventual suitors.

BHP Billiton (BHP.AX) is not expected to join the crowd given the relatively modest size of the deal and potential regulatory difficulties for any move the major makes in metallurgical coal, two of the sources said.

SYNERGIES

Analysts at Liberum in London said a rival offer from Anglo could make sense: "With only $6.8 billion of net debt and the second lowest gearing of the Big 5 at 14 percent, Anglo would be well-positioned to fund a joint cash bid."

But the sources said a firm counteroffer would be daring.

"I see a 25 percent probability in the current market. The present valuation is a challenging one," one of the sources familiar with the matter said. "It would be very bullish for Anglo or anybody else to bid higher than A$15.66 (per share)."

The source added there could still be room for Peabody and Arcelor to sweeten their offer if faced with a counterbid.

Peabody, already one of Australia's larger coal miners, and ArcelorMittal launched a hostile A$4.7 billion ($5.2 billion) bid for Macarthur Coal on August 1, after the Australian target's board said the approach undervalued the company and it was working on attracting a rival offer.

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.

A bid for Macarthur would be a substantial bet on strong and steady demand in Asia, from China and India, as well as from other countries where steel growth is forecast strong.

"Macarthur is a large-scale mining operation but it's not hard coking coal, it's PCI pulverized coal which is essentially just carbon and you can substitute oil, gas, other things for PCI if you need to," a senior industry source said.

"PCI itself is a tricky market and completely different dynamics to hard coking coal and thermal coal."

(Additional reporting by Sophie Sassard and Jackie Cowhig in London; Editing by Ed Davies and David Cowell)

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