Buried bad coal deal may yet resurface

A coal miner smiles as he exits the Metropolitan coal mine at Helensburgh
A coal miner smiles as he exits the Metropolitan coal mine at Helensburgh, 40km (25 miles) south west of Sydney June 9, 2011. REUTERS/Tim Wimborne

MELBOURNE, Sept 9 (Reuters Breakingviews) - Some deals should never see the light of day. Yankuang Energy’s (600188.SS) $1.8 billion bid in May for the 38% of Yancoal Australia (YAL.AX) it doesn’t already own is one of them. Not only did the Chinese parent offer a discount rather than a premium for the stake, it also wanted to pay for it using a bond convertible into its own shares with an interest rate that was far lower than the dividend Yancoal shareholders could expect. Unsurprisingly, the board Down Under promptly rejected the deal.

Negotiations seem to have stalled, as Yankuang on Thursday decided to shove its proposal back into the ground. The $31 billion coal miner is blaming “market conditions”, an odd excuse considering the near-record price of the fossil fuel. Meanwhile, thanks to global energy crises, valuations at both companies have jumped by around a third since the offer was made.

There’s a chance Yankuang may dig up its takeover plans in the future, when markets stabilise or when the target’s stock comes down. Better that it stays where it is. (By Antony Currie)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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