Peabody Slashes Macarthur Coal Bid

Submitted by Jim Thesiger on 11 May, 2010 - 07:50

Peabody Energy, the US based coal company has lowered its bid by as much as $300 million for Australia based Macarthur Coal (MCC), which is being considered as a sign that the Australian miners are losing their value in the market due to the super-profits tax proposed by the government. The reviewed Peabody deal is expected to be “knocked back” by the major Macarthur shareholders. The lower bid has come following the decision made by Xstrata Copper and Incitec Pivot who have declared that they are not going to continue with the exploration drilling in Queensland due to the planned 40 per cent tax on profits. According to Incitec chief executive James Fazzino, the proposed tax would likely mean that a miner investing offshore purchasing explosives from his company would be concentrating on projects outside the borders of Australia. The latest declaration has ignited further debate regarding the proposed tax.

In a statement, Peabody stated that it has reduced its earlier $16 per share bid to $15 after taking the proposed super profit tax and due diligence under consideration. It is to be mentioned that the reviewed Peabody bid has valued the Australia based coal miner at $3.8 billion. Although some people are taking the new bid positively since the tax proposal has slashed as much as 15 percent valuations from the analysts, there is a good possibility that the new offer will be turned down by the major Macarthur shareholders.

It is to be mentioned that Peabody will need 75 percent of the shares voted in order to win the deal with Citic Pacific, ArcelorMittal and Posco holding almost half of the Macarthur shares (47 percent). The support from Citic will be vital in this case since it holds as much as 22.4 percent shares in the company. The Macarthur shares went down by 31 cents on Monday to $13.38 to its lowest since March 30 which is significantly lower than the $16.68 hit on April 19, based on the rumor that Xstrata would come up with an improved offer.