Macarthur bid to launch takeover spree: analysts

THE proposed $A4.7 billion takeover of Macarthur Coal by Peabody Energy and ArcelorMittal is round one in a series of mergers and acquisitions that will take place in the Australian coal industry regardless of the carbon tax, analysts said yesterday.
Macarthur bid to launch takeover spree: analysts Macarthur bid to launch takeover spree: analysts Macarthur bid to launch takeover spree: analysts Macarthur bid to launch takeover spree: analysts Macarthur bid to launch takeover spree: analysts

Image courtesy of Peabody Energy.

Lou Caruana

And while Prime Minister Julia Gillard was claiming the takeover offer was proof of the long-term viability of the industry under a carbon tax, Australian Coal Association executive director Ralph Hillman said Macarthur Coal was an exceptional case because it offered a premium pulverised coal injection product that did not have marginal operations.

“Now what we're seeing here is a high quality asset selling metallurgical coal, which is a very high value commodity,” Hillman reportedly told the ABC.

“So it's not astonishing that this should take place. It certainly doesn't prove the carbon tax won't impact industry.”

“What the ACIL Tasman modelling shows, that's the modelling we commissioned, was that high-cost mines would probably be at risk of going under because of the tax.”

Mine Life’s Gavin Wendt told ABC’s The World Today that the quality of Macarthur’s PCI coal would drive takeover activity in the company again this year, after a series of offers and counter-offers last year from several global and local players that failed to end up in a complete takeover.

“Because you have so many big groups of Macarthur registers, so many significant shareholders that wield a lot of clout, you really need the agreement of all of those shareholders, like CITIC, if you're going to be successful, and this has been the problem for Peabody or any other potential bidder over the years,” he said.

“The thing that Peabody has got going for it is it also seemingly has agreement, at this stage at least, from POSCO (Pohang Iron and Steel Company), which is one of the major shareholders in Macarthur.”

London-based Seven Investment Management’s Justin Urquhart Stewart told The World Today the carbon tax would be considered a cost of doing business in Australia and would not discourage international takeover activity in the Australian coal sector.

“That's just merely an extra tax you have to pay in terms of, to gain entry to the nightclub,” he said.

“People want to get into the nightclub because they want to have some of the assets that are in there but [if] they have to pay extra fees to be able to get in, then that's just the cost of being able to do business.

“There are a lot of people with a lot of cash around and they all wish to pick up assets whilst they can. So yes, be prepared for more M&A and that'll be good for markets overall.

“I think you have to realise that the focus on mining and mining stocks and commodities is still extremely strong. Although the global economy appears to be slowing, the access to strategic assets is seen as being absolutely vital.”

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