Pulse Check Update: Takeover Plot Thickens for Macarthur

Apr.15.10 | About: Xstrata Plc (XSRAF)

After New Hope Corp.’s $3.45 billion offer last week failed to gain interest from Macarthur Coal Limited’s management team, the Australia-based coal producer is turning to Macarthur’s shareholders hoping to gain interest.

“We are in the process of talking to all Macarthur shareholders and the discussions are continuing today,” New Hope chairman Robert Millner told Reuters.

It’s a tough sell, considering that Arcelor, Posco and Citic – the Australia-based coal exploration company’s main shareholders – are motivated more by a steady supply line than by exit valuations. On Tuesday, Posco said it does not plan to sell its Macarthur stake. Posco Senior Vice President Kwon Young-tae told Reuters, “Ninety-nine percent of our investment purpose in Macarthur is to secure a stable supplier.”

Meanwhile, Macarthur shares are on the decline, as Switzerland-based mining company Xstrata PLC takes its time considering making a competing offer. RBC Capital Markets analyst David Haddad said, “Everyone is waiting to see if Xstrata will come in with a bid, and the longer Xstrata takes, the more Macarthur’s share price could fall because there’s still the shareholder vote on Monday.” According to Dow Jones, an unnamed analyst said Peabody’s A$14 a share cash bid seemed to be a reasonable floor for the stock.

Jamie Spiteri, head dealer at Shaw Stockbroking Ltd. said the fight to acquire Macarthur is a high-stakes game for the mining companies. “The major coal players globally do not want to let assets go into the hands of competitors,” he said. “It’s very hard to determine at this stage who will win. It all points to fairly hostile activity now.” Mark Pervan, a senior commodity strategist at Australia and New Zealand Banking Group Ltd. told Bloomberg Television the level of interest in Macarthur is “a really clear signal that market conditions are going to be stronger.”

Avram J. Davis