Macarthur turns on the pressure cookerStephen...

Macarthur turns on the pressure cooker

Stephen Bartholomeusz

Published 12:15 PM, 30 Aug 2011

The Macarthur Coal board is conducting a textbook response to the takeover bid from Peabody Coal and ArcellorMittal.

Almost a month ago the board revealed that the 60:40 Peabody/ArcellorMittal joint venture had indicated it was prepared to lift the $15.50 a share offer it had earlier put on the table to $16 a share if Macarthur was prepared to enter a bid implementation agreement that would have prevented the target company from talking to or soliciting another bidder.

Macarthur rejected that ?offer? and also revealed it had told the bidders it would have recommended the $16 a share bid if they were prepared to add an increase to $18 a share if the offer achieved the 90 per cent threshold for compulsory acquisition. That counter-proposal was rejected by Peabody and ArcellorMittal.

Today Macarthur recommended the $16 a share revised offer (plus a 16 cents a share dividend) and entered a bid implementation agreement that included ?no shop? and ?no talk? provisions, as well as a break fee of $48.3 million. It will now close its data room.

At face value that might look like surrender in the absence of alternatives, given that the $16 a share was rejected by Macarthur a month ago.

Macarthur has, however, used that month wisely. It canvassed all possible bidders and gave them access to its data room. Anyone remotely interested in bidding for the coal producer has already sifted through all the necessary data and had their discussions with the company.

Shutting down that data room will have no bearing on the potential for a counter-bidder to emerge and, in the context of a $4.9 billion offer, the break fee is of little consequence.

What Macarthur has done, however, is to lock in the $16 a share offer from Peabody and ArcellorMittal. If no one else emerges its shareholders are guaranteed a put option at a price that represents a premium of almost 50 per cent to the levels at which Macarthur shares were trading before the original bid was announced.

Macarthur has also ensured that if there were to be a counter-bid it would probably have to be at a price of at least $16.50 a share, if not higher, to see off Peabody and ArcellorMittal. It has also broadcast its view that $18 a share is the appropriate price level for 100 per cent of the company.

The Macarthur register means that, while ArcellorMittal?s 16 per cent shareholding gives the current bidders a head start if there were to be a contest for control, it isn?t a decisive one. Also on the register are China?s CITIC, with 24.5 per cent, and South Korea?s Posco, with about 7 per cent.

CITIC hasn?t provided any indication of whether or not it would sell into any offer and the Peabody/ArcellorMittal offer has been structured to contemplate an outcome where CITIC retains its shareholding and becomes a third partner in an unlisted joint venture, although there are those who believe CITIC would be uncomfortable having a large exposure to an unlisted vehicle controlled by Peabody.

There might not be an auction for Macarthur, one of the largest of the independent coal producers and a group that produces about a third of the global market for low-volatile pulverised coal injection material.

The Macarthur board, however, having locked in the $16 a share from Peabody and ArcellorMittal, has ensured that there is potential for a contest and, by now recommending the offer in the absence of a higher alternative, has started the clock ticking and created some pressure for any aspiring third party to show its hand.