The cash offer of A$15.50 a share represents a 40 percent premium to Monday’s close and comes just a day after Australia unveiled a plan to tax carbon emissions from the nation’s worst polluters — some 500 companies, including coal miners.
It also comes amid a flurry of activity in takeovers involving Asia-Pacific companies, with at least four multibillion-dollar deals announced on Monday, and marks additional consolidation within the coal industry.
Macarthur — named after US General Douglas MacArthur — made no recommendation on the proposal and said it would talk with Peabody and Arcelor on price and terms. China’s Citic, which is an influential key shareholder, has not yet made its position clear.
Macarthur was the subject of a three-way bidding war in 2010 when it agreed to talk with Peabody, the highest bidder with an A$16 offer. But talks collapsed after Peabody cut its offer when the center-left Labor government slapped coal and iron ore miners with a mining tax.
Analysts said there are important differences this time around.
“Now they have Arcelor, which is actually a shareholder and they’ve locked away some pre-bid acceptances for the first time. That’s got to give them more comfort,” said CLSA Asia Pacific Markets mining analyst Hayden Bairstow in Sydney.
Peabody, already one of Australia’s larger coal miners, is pursuing an aggressive growth strategy outside the United States and has committed to doubling its Australian presence.
A Peabody spokesman said the company declined to comment beyond its press release.
The company’s shares fell nearly 4 percent to $57.69 in mid-morning trading on the New York Stock Exchange.
ArcelorMittal, the world’s largest steel company, meanwhile, is boosting its iron ore and metallurgical coal asset portfolio to ease the pain of rising fixed- and raw-material costs that have hit the entire steel industry.
“It is clear in (Arcelor’s) strategy that they have to backward integrate, and that means getting more involved in metallurgical coal and iron ore mining,” said analyst Scott Finlay at Daiwa Capital Markets in London.
“Macarthur is the world’s biggest low volatile PCI producer, it has large resources in Queensland — nice, simple open-pit operations — and low costs. It makes strategic sense to increase the stake.”
PCI 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.
ArcelorMittal and Peabody said they would make their takeover proposal through a bid company, with ownership split 40 percent and 60 percent, respectively.
ArcelorMittal is the second-largest shareholder in Macarthur with 16.2 percent, according to its website.
But it is the support of China’s Citic, the largest owner with 24 percent, that will be critical, as the proposal is conditional on winning acceptances for more than 50 percent of the company.
Citic Resources Australia, a unit of Citic, plans to study the proposal and has not yet made a decision, its managing director said.
Citic had been the major stumbling block in the previous offer, and the new potential deal, while expensive, made strategic sense, Brean Murray Carret & Co. analyst Jeremy Sussman said in a client note.
“It gives the company access to precious terminal space in Australia and makes the company a more met-heavy coal producer,” he wrote.
The timing of the offer caught some investors by surprise. The deal was unveiled just a day after the Australian government’s new carbon levy, and as the company recovers from recent flooding of its mines.
Analysts, though, said the tax has long been expected in the market and was unlikely to weigh on the deal at current lofty coal prices — unless the government raises the levy.
“This deal looks opportunistic,” said Tim Schroeders, a portfolio manager at Pengana Global Resources Fund.
“The carbon tax was just announced yesterday and with Peabody’s involvement again, investors will be cynical. They cut their offer right after another big tax last year,” he added, but declined to say if he owned Macarthur shares.
Despite environmental concerns, the global market for coal is healthy, with prices for the pulverized coal mined by Macarthur trading at a narrowing discount to hard coking coal.
Spot prices for coking coal and PCI, pulverized coal injection-type coal, have softened in recent weeks on the back of slower Asian demand, but this was expected to be a short-term blip.
In fact, the deal is 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 to be strong. Any big downturn would be bad news, as production would then be sold for power generation, at less than half the coking price.
It was unclear on Monday whether other suitors could step in to again scupper Peabody’s efforts. Australian miner New Hope said a year ago, after the takeover battle, that it remained interested in Macarthur.
Globally, companies are searching for opportunities to put hefty cash piles to work and a slew of other deals were announced on Monday. Among the larger offers: Nestle, the world’s largest food company, offered to buy 60 percent of Chinese candy maker Hsu Fu Chi International for about $1.7 billion, and a group owned by Hong Kong’s Li Ka-shing made a proposal for Northumbrian Water valuing it at 2.4 billion pounds ($3.9 billion).
The deal values Macarthur’s 1.64 billion tons in reserves at nearly A$3 per ton. Rio Tinto’s purchase of Riversdale earlier this year valued its coking coal-dominated resources at A$0.49/ton while Macarthur paid A$1.68/ton when it bought some coal mining assets a year ago, according to a report from Morgan Stanley.
Macarthur is being advised by JPMorgan, ArcelorMittal is being advised by RBC Capital Markets and Peabody has engaged UBS and Bank of America Merrill Lynch.
