ST. LOUIS—The deal for Peabody Energy, the world’s biggest private-sector coal company, and a partner to buy Australia’s Macarthur Coal for more than $5 billion concludes more than a year of pursuit and continues widespread consolidation in that energy sector.
Macarthur, a major producer of pulverized coal coveted by steel producers, said Monday that it is recommending its shareholders accept a revised bid of $16 per share—a 44 percent premium over the stock’s $11.8 close on July 11 before it was made—from St. Louis-based Peabody and Luxembourg’s ArcelorMittal, the world’s largest steelmaker.
ArcelorMittal already is Macarthur’s second-biggest shareholder, with a 16 percent stake.
Twice spurned by Macarthur over the past year and a half, Peabody believes the sweetened deal would bolster Peabody’s growing Australia operations, which already produce much of the coal sent to customers in the Asia-Pacific region—notably China and India—and which have been a key revenue driver for Peabody.
Macarthur would be swallowed up by a new holding company owned 60 percent by Peabody and the rest by ArcelorMittal.
While calling the deal “slightly on the expensive side,” Brean Murray, Carret & Co. analyst Jeremy Sussman wrote in a research note Tuesday that “this likely transaction makes a lot of strategic sense for Peabody.” The combination would give the U.S. company “precious” Australian terminal space while making Peabody a bigger player in producing the coal used in steelmaking.
Sussman affirmed his “buy” rating on Peabody stock and his target price of $81 apiece.
“We believe there is a very likely chance that this deal goes through as is,” Sussman wrote.
Macarthur said Monday that a better bid still could arise, but there was no certainty one would.
The offer from Peabody and ArcelorMittal includes a “no-talk” limitation, meaning Macarthur is banned from talking to other potential buyers.
The deal comes on the heels of Alpha Natural Resources Inc.’s purchase of struggling Massey Energy Co. in a $7.1 billion buy announced in June. Alpha, the nation’s fourth-largest coal producer by revenue, said then that the acquisition will offer greater access to international markets.
Peabody, undertaking what it has called its biggest expansion in its 128-year history, considers the deal for Macarthur—with roughly 270 million tons of coal reserves—”a major step,” Peabody chairman and CEO Gregory Boyce said.
Aditya Mittal, ArcelorMittal’s chief financial officer, urged Macarthur shareholders to accept the joint offer.
Peabody, which fuels roughly one-tenth of all U.S. electricity generation and more than 2 percent worldwide, also has signed an agreement to develop a huge Chinese surface mine expected to produce 50 million tons of coal a year for decades.
Sussman, in his research note, said such ventures should “help Peabody further cement its status as the bellwether of the coal space.”
Peabody shares rose 4 cents to close at $48.63 on Tuesday and climbed another 8 cents after hours.
