Rival Bid to Peabody's $4.7-Bln. Offer Could Raise Price for Macarthur
Major shareholders to block take-over?
Peabody Energy Corporation and AcelorMittal S.A. have submitted a joint offer to purchase Macarthur Coal limited for $4.7 billion.
U.S.-based Peabody, the world's largest private-sector coal company, is teaming up with steel and Luxembourg-based mining giant ArcelorMittal, to offer to purchase Brisbane-based Macarthur at $15.50 a share, a 40 percent premium to the closing price on Monday. A newly formed company 60 percent owned by Peabody and 40 percent owned by ArcelorMittal will pursue the off-market takeover offer.
Following the announcement of the proposal, Macarthur's shares surged the highest in 10 years. Macarthur's stock rose and closed at $15.14 on July 12, the first day of trading following Peabody's announcement of the offer Monday night.
The Australian reports that the rise in shares signal that the market is expecting another bidder that would force Peabody and AcelorMittal, which owns 16 percent of Macarthur's outstanding shares, to raise their offer.
Swiss giant Xstrata is still seen as a "dark horse" in the new race to take control of Macarthur, according to The Australian.
Last year, Macarthur received four takeover proposals from Peabody Energy Corporation and two from New Hope Corporation Limited. The bids, including the final offer of $15 per share by Peabody, were rejected. Bidding last year attracted interest from others, including Xstrata.
Peabody failed to pursue the acquisition via a scheme of arrangement despite a "clear and significant premium" for Macarthur shareholders. "It is unfortunate that one shareholder could block a proposal that would have created significant value for all Macarthur shareholders," the St. Louis, Missouri-based company said.
Major shareholders of Macarthur are China's state-owned CITIC (22.4 percent), ArcelorMittal (16.2 percent) and Korea's Posco (7 percent). CITIC had opposed to the Peabody take-over.
With ArcelorMittal now on its side, Peabody hopes to have a different outcome this time. The proposal this time is conditional only on a minimum of 50.01 percent acceptance by Macarthur shareholders. Hence, Peabody this time would only need to woo holders of 34% of the shares.
Like last year though, other parties may also knock in Macarthur's doors. "It's possible another major coal group, such as Xstrata or Anglo could try to replicate the approach of Peabody-ArcelorMittal and seek the support of CITIC, and perhaps Posco, for a rival offer, which would give them a starting point of almost 30 per cent," Bryan Frith, writing for the Australian, said.
The board of Macarthur said it "makes no recommendation" and advised shareholders to "take no action" though it said it will engage in talks with Peabody and ArecelorMittal in relation to "price and terms".
According to Peabody Chairman and Chief Executive Officer Greg Boyce, "We believe there is significant value that can be created by managing Macarthur's portfolio of coal assets using Peabody's industry-leading operating, development and commercial skills. We look forward to advancing this proposal to complete a transaction for the benefit of Macarthur shareholders."
Macarthur is the world's largest producer of seaborne low volatile pulverized coal injection (LV PCI) coal with production and development assets in the Bowen Basin, Australia, including the Coppabella and Moorvale Joint Venture and Middlemount Mine. It controls total coal reserves of approximately 270 million tonnes (approximately 175 million tonnes on an attributable basis) and total resources of approximately 2.3 billion tonnes (approximately 1.7 billion tonnes on an attributable basis). It has current production guidance of 3.8 to 4.0 million tonnes for the year ended June 30, 2011.
In May, Macarthur said that it expects net profit after tax for fiscal year ended June 30, 2011 will likely be in the range of $185 million to $205 million, which is significantly higher than the $125.1 million reported in the previous corresponding period.Macarthur ended the financial year ended June 30, 2010, with a market capitalisation of $3.08 billion. Total shareholder return for the last year has been 88% compared to 13% for the ASX top 200 companies.
Peabody and ArcelorMittal are offering about 8 times Macarthur's estimated 2012 earnings before interest, depreciation, tax and amortization, "in line with the current average for pure play coal companies," Bank of America Merrill Lynch said in a report, according to Bloomberg News.
Peabody is the world's largest private-sector coal company and a global leader in clean coal solutions. With 2010 sales of 246 million tons and nearly US$7 billion in revenues, Peabody fuels 10 percent of U.S. power and 2 percent of worldwide electricity.
ArcelorMittal, one of the world's leading integrated steel and mining company, with operations in more than 60 countries. In 2010, ArcelorMittal had revenues of US$78 billion and crude steel production of 90.6 million tonnes, representing approximately 8 percent of world steel output. ArcelorMittal's mining operations produced 47 million tonnes of iron ore and 7 million tonnes of metallurgical coal as well in 2010.
Macarthur is being advised by J.P. Morgan Australia Limited and Corrs Chambers Westgarth. Peabody has engaged UBS and Bank of America Merrill Lynch as its financial advisers and Freehills as its legal adviser. ArcelorMittal has engaged RBC Capital Markets as its financial adviser and Mallesons Stephen Jaques as its legal adviser.
The move on Macarthur was launched just one day after Prime Minister Julia Gillard announced the controversial A$23 a metric ton carbon tax carbon tax. The coal industry has opposed the tax, citing that it would cut the value of coalmines and cost jobs and investment in the sector. The offer by Peabody is a boost to the Gillard government's much maligned carbon pollution policy.