July 12, 2011 / 1:35 AM / 6 years ago

Peabody, ArcelorMittal $5 billion Macarthur bid on firm footing

6 Min Read

<p>A truck is loaded at Macarthur Coal's Coppabella mine located about 760km (472 miles) northwest of Brisbane in this undated handout photograph.Macarthur Coal/Handout</p>

MELBOURNE (Reuters) - Peabody Energy (BTU.N) and ArcelorMittal ISPA.AS are likely to succeed with their $5 billion takeover offer for Macarthur Coal MCC.AX, investors bet on Tuesday, driving up shares in the world's biggest producer of pulverized coal by 37 percent.

Shares in Macarthur soared to just below the offer price of A$15.50 a share, indicating investors do not expect a bidding war for steel-making ingredient mined by Macarthur, in contrast to the three-way battle for the company last year led by Peabody.

Peabody then ran into resistance from Macarthur's three key shareholders -- ArcelorMittal, Korea's POSCO (005490.KS) and China's Citic (1205.HK) -- with its bid of up to A$16 a share.

This time Peabody has locked in top global steel maker ArcelorMittal and lowered the acceptance threshold to 50 percent from 75 percent, making it possible to go ahead with the takeover without the support of POSCO and top shareholder Citic, which owns 24 percent.

Macarthur has started canvassing its top shareholders' views on the offer ahead of talks with Peabody and ArcelorMittal, a source close to the company said.

The bidders expect to start going over Macarthur's books in the next few days, a person with knowledge of the situation said.

While the offer is no higher than last year's top offer of A$16 a share, it is about 19 percent more expensive for the bidders in light of the Aussie dollar's surge over the past 14 months.

Peabody and ArcelorMittal picked an opportune time to strike, as the sector has been under pressure even with sharply higher coal prices since Peabody walked away in May 2010, due to proposed mining and emissions taxes in Australia.

"The cost of mining has been rising sharply and mining resources are running low, so industry leaders such as Peabody and ArcelorMittal need to expand their access," Ariel Hsiao, manager of the Gold and Mining Fund of HSBC Global Asset Management in Taiwan.

"China, the world's biggest buyer of commodities, has been trying to acquire mining companies to help cut costs. That would not be something that companies including Peabody would like to see, so they are doing it before China succeeds in its attempt," said Hsiao, who recently sold her holdings in Peabody.

Full Valuations

Macarthur is also vulnerable as the industry has been struggling to get back on its feet following devastating floods earlier this year in Queensland, the heart of Australian coal production and home to Macarthur's mines.

POSCO, which holds a 7.25 percent stake, has declined to comment on the offer, while Citic Australia said it was studying the offer.

Reacting to the proposed bid, Macarthur's shares closed at A$15.14 on Tuesday. The offer will be reduced by the amount Macarthur pays in its final dividend in August, a factor that directors may focus on in evaluating the offer.

At A$15.50 a share, the offer is worth 19 times forecast earnings for 2012.

"We view these multiples as full for the producing asset base and do not rate an overbid highly," Citi analysts said in a note.

The PCI coal that Macarthur produces is prized by steel makers as a cheaper and cleaner coal for use in coke ovens at steel mills, which is why ArcelorMittal, Citic and POSCO all bought strategic stakes in the company.

Last year, Peabody outbid New Hope Corp (NHC.AX) before walking away from its offer due to Australia's then-proposed resources super profits tax.

New Hope is unlikely to enter a bidding war for Macarthur, as it has just acquired Northern Energy (NEC.AX) and is focused on its development pipeline, a person with direct knowledge said on Tuesday.

"We've got enough to keep us busy, but we've always got our eyes open," New Hope Chairman Robert Millner told Reuters, declining to comment specifically on whether New Hope may take another look at Macarthur.

He called the A$15.50 offer a reasonable price.

Other coal miner stocks rose on hopes they might be the next targets, with Gloucester Coal GCL.AX up 4.2 percent, New Hope up 1.6 percent, and Whitehaven Coal (WHC.AX) and explorer Aston Resources AZT.AX both up just over 2 percent, against a 1.7 percent drop in the broader market .

Whitehaven, currently worth A$3 billion, failed to secure a buyer following a five-month auction earlier this year, with its managing director partly blaming the impact of the strong Aussie dollar.

Macarthur shares are not widely held by institutions in Australia, who see the coal stocks as overpriced, particularly relative to other resources stocks.

Coking coal producers in particular have soared due to strong demand from steel makers in China and India and a lack of major new resources being developed.

"From our perspective, all of those (coal) stocks are relatively expensive, relatively unattractive," said Ben Lyons, an analyst at ATI Asset Management, which does not own shares in Macarthur.

Additional reporting by Faith Hung in TAIPEI; Editing by Balazs Koranyi and Lincoln Feast

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