New Hope joins the bidding war for Macarthur coal

SYDNEY: New Hope, an Australian coal producer, has bid $3.71 billion in shares to buy Macarthur Coal, battling rival proposals from Peabody Energy and Noble Group.

New Hope offered 2.7 of its shares for every one of Macarthur's, valuing the world's biggest producer of pulverised coal used by steelmakers at A$14.58 per share, the Ipswich, Queensland-based company said yesterday. Peabody raised its initial offer to A$14 a share this week. Macarthur, halted from trade yesterday, closed on Thursday at A$14.36.

The contest for Macarthur comes after shipments of coal to China last year tripled and prices doubled. Xstrata, the world's biggest exporter of power station coal, may also have entered the fray, approaching ArcelorMittal and Posco, two of Macarthur's biggest shareholders, with an alternative proposal, says Australian Financial Review.

"This bidding war shows the interest the world has in Australia's key energy resources," said Michael Heffernan, a client adviser with Austock Securities in Melbourne. "It just shows you the demand for our resources. They all think the growth is going to continue."

The battle has helped make it the busiest start to a year for takeover offers of Australian companies in at least a decade. More than US$30 billion has been offered for Australian-based companies in announced deals so far this year, more than double the US$14.1 billion in the same period last year.

"The primary driver of this is the steel industry globally is recovering and we are now reaching the stable levels that we saw in terms of production rates 12 to 18 months ago," said Tom Price, a commodity analyst at UBS.

Prices for steelmaking coal are rising on demand from China and as heavy rain and flooding in Australia's Queensland state constrain exports. Posco agreed to pay US$167 a tonne, or 109 per cent more than previously, for semi-soft coal in a three-month supply accord with an Australian producer, UBS said on March 26. That compares with US$80 a tonne for the year ended March 31, and a UBS forecast of US$125 a tonne.

The bidding isn't likely to be over, with Macquarie Group and Morgan Stanley saying this week that offers may need to approach A$16 a share to win Macarthur's support.

While New Hope's offer is all stock and Peabody's offer is in cash for all of Macarthur, Noble's deal is more complex, proposing Macarthur acquire Gloucester Coal, which is 87.7 per cent owned by Noble. If Macarthur shareholders agree to that at a meeting on April 12, Hong Kong-based Noble would become Macarthur's largest shareholder.

Both the New Hope and Peabody bids require Macarthur shareholders reject the Gloucester takeover. James Rickards, an Australian-based spokesman for Xstrata's coal unit, did not return a call to his mobile phone. Macarthur said it hadn't been approached by Xstrata.

The directors of Macarthur were meeting yesterday to consider postponing the shareholder vote, Macarthur said. Peabody wants the vote to be delayed while Macarthur and Gloucester continue to support their own proposed deal.

Macarthur shareholders crucial to all bids are Citic Australia Coal, which has the largest stake at 22.4 per cent; ArcelorMittal, the world's largest steelmaker, with 16.6 per cent; and South Korea's Posco, which owns 8.3 per cent. China's imports of coal used to make steel are forecast to rise 5.6 per cent to 38 million tonnes this year, says Macquarie.

Investment banks in Australia are adding to teams and new advisory firms are entering the Australian market to take advantage of the heightened deal activity and expectation of more to come.

- BLOOMBERG