Ann: MCC Further Proposal from Peabody , page-20

We now have an interesting live example of the dilemmas that will be created by the Rudd governments proposed tax on resource industry super profits, with Peabody Energy today reducing its indicative offer of $16 a share for Macarthur Coal and re-stating it at the $15 a share level previously rejected by the Macarthur board.

Peabody didnt single out the proposed tax for the decision to reduce the value of the offer a $340 million reduction referring to both the tax and the results of its due diligence as considerations.

Given the protracted uncertainty that will prevail until the fate and detail of the tax has been resolved, however, there isnt a transaction in the sector that wont be affected by the governments announcement of the RSPT last week.

For the Macarthur board, that uncertainty adds to the complexity of the decision-making. A $15 a share offer post that announcement is different to a $15 a share bid pre-announcement, but how different it is wont be known until the final version, if there is a final version, of the tax is known.

Their dilemma is precisely the one raised in Business Spectator last week (Rio wont be alone on the shelf, May 6).

If there were a major adverse impact from the tax, rejecting $15 a share could, with hindsight, be regarded as a major misjudgment that was injurious to shareholders interests. If the tax isnt implemented or its impact is significantly diluted by consultation with the sector, however, endorsing the offer in expectation that the RSPT would damage value could be equally proven foolish, with hindsight.

The Macarthur situation is, of course, quite complicated, with three strategic shareholders CITIC, ArcelorMittal and Posco on the register holding nearly 48 per cent of the companys capital. Peabody has given them the option of retaining their interests in a privatised Macarthur.

Thats likely to be more appealing to Arcellor Mittal and Posco, as steelmakers looking for security of supply, and a hedge against future coal prices, than for CITIC, an investor. CITIC alone, moreover, could block the scheme of arrangement Peabody proposed to implement its offer.

In the background New Hope Corporation, with its proposed cash and share exchange, is also still hovering. Given that its proposal is largely scrip, that could provide something of a deferral of the RSPT impacts Macarthur shareholders would remain exposed to either a positive or adverse impact until the tax is settled rather than crystallising them today.

Postscript: There are suggestions from sources close to the takeover that Peabody itself, in discussions with Macarthur, valued the negative impact of the RSPT at $2 a share, or about $680 million. While that cant be confirmed, if it were true then the $15 a share offer would equate to a pre-RSPT offer of $17 a share and what appears to be a reduction would actually be an increase!