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ArcelorMittal, Peabody Energy to Acquire Macarthur Coal

ArcelorMittal, the world’s largest steelmaker, and Peabody Energy Corp. agreed to buy Macarthur Coal Ltd. after sweetening their bid, valuing the Australian producer at A$4.8 billion ($5.2 billion).

ArcelorMittal and Peabody, the biggest U.S. coal producer, raised their bid to A$16 a share from A$15.50, Brisbane-based Macarthur said today in a statement. The board recommends the offer, which is 44 percent more than the stock’s close before the initial proposal on July 11.

Macarthur’s shares closed at A$15.86 in Sydney, indicating investors don’t yet expect any counterbid. Buying Macarthur will give Peabody and ArcelorMittal, its second-largest shareholder, control of the world’s biggest maker of pulverized coal used by steelmakers after prices reached a record. “There’s probably not a lot more that can be extracted for Macarthur shareholders unless there’s a challenge from another party,” said Jamie Spiteri, head dealer at Shaw Stockbroking Ltd. in Sydney.

The Peabody group’s bid for Macarthur will be the second-largest coal takeover this year, second only to Alpha Natural Resources Inc.’s $7.1 billion purchase of Massey Energy Co. in June. This year has yielded almost 50 coal transactions globally, with a combined value of more than $20 billion.

No Assurance

“In the period since the initial offer, a number of parties have conducted due diligence,” Macarthur said in the statement. “Although it remains possible that a superior proposal might be made, none have emerged to date and there can be no assurances that any will emerge.”

Anglo American Plc is exploring a bid for Macarthur Coal Ltd., according to two people with knowledge of the matter. Teck Resources Ltd. and Yanzhou Coal Mining Co. may also be interested, the Australian Financial Review said in its Street Talk column on July 27, without citing anyone.

China’s Citic Group owned 24.6 percent of Macarthur, ArcelorMittal 16.07 percent and South Korea’s Posco 7.02 percent as at July 7, according to the company’s web site. The bidders are seeking at least 50.01 percent of the target. Citic’s nominee on the board, Chen Zeng, hasn’t been involved in any decision or resolution on the Peabody and ArcelorMittal bid, Macarthur said in the statement.

Second Time Around

“Our offer is the only offer before Macarthur shareholders, and we urge them to accept without delay,” Aditya Mittal, chief financial officer of Luxembourg-based ArcelorMittal, said in a joint statement with Peabody.

It’s the second time Peabody has bid for Macarthur, which rejected its A$3.8 billion, or A$15 a share, approach in May last year. Macarthur ended transaction talks with ArcelorMittal in June 2008 after the steelmaker bought a 14.9 percent stake the previous month.

The proposal values Macarthur at about 9.9 times analysts’ projected earnings before interest, taxes, depreciation and amortization for fiscal 2012, based on Bloomberg calculations. The median for coal takeovers greater than $1 billion completed this year was 6.7 times Ebitda, data compiled by Bloomberg show. “It’s a fair value price,” Andrew Harrington, resources analyst with Patersons Securities Ltd., said by phone from Sydney. “Any counterbid is becoming increasingly difficult. Citic is the cornerstone of any deal approach and you’d have to have been in advanced discussions in order to move quickly.”

Citic Move?

Two phone calls to Citic’s public relations department in Beijing weren’t answered during office hours. The company didn’t immediately respond to a voicemail message seeking comment on Macarthur agreeing to be acquired by ArcelorMittal and Peabody. The Chinese company said July 11 it hadn’t decided whether to accept the initial offer. A rival bid may include Citic, brokers including RBS Morgans Ltd. have said. Citic is receiving advice from Macquarie Group Ltd., said one person familiar with the matter.

The bid is being made through PEAMCoal Pty, a venture 40 percent owned by ArcelorMittal and 60 percent by Peabody.

Macarthur is being advised by J.P. Morgan Australia Ltd. and Corrs Chambers Westgarth. ArcelorMittal is advised by RBC Capital Markets and Mallesons Stephen Jaques. UBS AG, Bank of America Merrill Lynch and Freehills are advising Peabody.

Under the terms of the agreement, Peabody and ArcelorMittal have the right to match any competing offer and Macarthur faces a A$48.3 million break fee.

Credit Suisse Group AG in July raised its long-term price forecast for pulverized coal by 17 percent to $134 a metric ton. Benchmark prices reached a record $275 a ton in the June quarter, Macarthur said this month, citing production constraints in Australia and stronger seaborne global demand.

Source: Bloomberg