March 8, 2021

DealBook: Peabody and Arcelor Go Hostile With Macarthur Bid

An excavator loads coal at Macarthur Coal's Moorvale mine located about 466 miles northwest of Brisbane, Australia.Macarthur Coal, via ReutersAn excavator loads coal at Macarthur Coal’s Moorvale mine located about 466 miles northwest of Brisbane, Australia.

Peabody Energy and ArcelorMittal took their bid for Macarthur Coal hostile on Monday, after failing to reach an agreement with management over a deal that values the company at $5.2 billion.

The 4.7 billion Australian dollar offer, or 15.50 Australian dollars a share, remains unchanged from the proposal the two companies made last month, prompting the Macarthur board to tell its shareholders to take no action on the proposal.

Macarthur said Monday that it would have backed a 16 Australian dollar-per-share bid, the same level at which Peabody bid for the coal miner last year, but only on certain conditions. They included an automatic increase of the offer to 18 dollars per share if the suitors won more than 90 percent of Macarthur shares; an additional dividend of 98 Australian cents per share above the 16 cents already planned; and allowing Macarthur to seek other buyers.

Given the lower offer, Keith DeLacy, chairman of Macarthur, said the present bid appeared “to be an opportunistic attempt to acquire Macarthur at a time of global economic volatility and regulatory uncertainty in Australia.” The country is considering implementing a carbon tax and a resource tax, both of which would hit the mining sector.

Peabody, for its part, would have bid 16 dollars per share if Macarthur had granted it the exclusive right to buy the company. It has described its current offer, however, as “compelling.”

“We have decided to take this attractive offer directly to Macarthur shareholders,” Gregory H. Boyce, head of Peabody, said in the company statement.

Macarthur, which pulverizes coal widely used to make steel from iron ore, noted that the Peabody proposal would require several regulators’ approval. It also said that the miner was “in continuing discussions with a number of interested parties in relation to possible alternative proposals that may result in a superior offer.”

Any other bidder would have to beat not just the 15.50 dollar cash bid by Peabody and Arcelor, but also their promise to allow for a 16 cent dividend at the end of the year.

The offer represents a 45 percent premium over Macarthur’s average share price for the month before the Peabody-Arcelor bid was disclosed on July 11.

Macarthur shares rose 28 Australian cents, or 1.8 percent, to 15.83 Australian dollars in Sydney on Monday.

The coal company has hired JPMorgan Chase as its financial adviser and Corrs Chambers Wesgarth as legal counsel. Peabody has hired UBS, Bank of America Merrill Lynch and Morgan Stanley as financial advisers while Freehills is the legal counsel. ArcelorMittal hired RBC Capital Markets and Mallesons Stephen Jaques.

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