2nd UPDATE: Macarthur Waits On Peabody To Consider Tax Impact On Takeover Plan
May 04 2010 - 5:13AM
Dow Jones News
Macarthur Coal Ltd. (MCC.AU) signalled its readiness Tuesday to
defend itself against any attempts by its takeover suitor Peabody
Energy Corp. (BTU) to bargain down its price in the wake of
Sunday's proposed reforms of Australian mining taxes.
U.S. miner Peabody, the world's dominant producer of coal for
use in blast furnaces, has told Macarthur that it was "working
through the impact" of the tax plans on its A$16-a-share bid for
Australia's biggest coal exporter.
But Macarthur is sceptical that Sunday's announcement of a 40%
tax on mining profits, to be introduced in 2012, changes the case
for the takeover significantly.
"That 40% rate was mooted as far back as January so it's been in
the public domain for some time," a spokeswoman said.
In a statement to the Australian stock exchange on Tuesday,
Macarthur said that Peabody had completed its due diligence on its
takeover bid Monday, but had advised Macarthur that the tax plans
had to be factored into its decision.
Some analysts argue that the details of the tax plans are less
harmful to mining companies than previously feared.
The plans were "not as detrimental as they appear on first
analysis," said Brendan Fitzpatrick, a resources analyst at
Deutsche Bank.
One person familiar with Macarthur's situation said that, if
anything, Peabody was in a better position after Canberra last week
promised to hold off carbon reduction plans until at least
2013.
However, Macquarie analysts said Monday that they see the new
tax reducing the present value of Macarthur's future cash flows by
nearly 20%, and Macarthur's shares on Tuesday closed down 38 cents,
or 2.7%, at A$13.62, having dropped nearly 10% the previous day on
fears that the tax would encourage Peabody to reconsider its
bid.
Peabody's motives on the deal have been hard to divine.
Australian media reports on Tuesday indicated that the U.S. miner
was seeking a lower price from Macarthur, but Paul Forward, an
analyst with Stifel Nicolaus, questioned in a note Monday whether
the tax plans significantly change the rationale behind the
offer.
The takeover of Australia's biggest coal exporter would be a
strategic move for Peabody to meet booming Asian demand, he said,
while the U.S. company's dominant position in the market for coal
used in steelmaking would allow it to pass any cost increases on to
consumers.
"Peabody probably anticipated some form of a steep resource tax
hike" when it set its A$16 per share bid, Forward said in the note,
and details of the tax had been reported in the media for several
months. "We are not convinced that it will abandon its bid in
response to the tax proposal."
However, one banker familiar with the matter pointed out that,
with the Australian miner's largest shareholder, China's Citic
Resources Holdings Ltd. (1205.HK), lukewarm on the proposal,
Peabody might in any case be unable to complete an offer and may be
looking for an excuse to walk away.
Citic is seen as being less concerned about issues of pricing
than in retaining its own influence with Macarthur through its
22.4% stake.
"I believe Citic would like to see Macarthur continue as an
Australian-owned independent coal miner. That leaves them with more
leverage, as opposed to just taking their A$16 a share," the banker
said.
After market closed Tuesday, Macarthur put out profit guidance
for the 2010 financial year, placing net profits in the range of
A$103 million to A$113 million, compared to A$168.6 million in
2009. The company left unchanged its forecast for annual sales of
4.8 million-5.0 million metric tons.
-By David Fickling, Dow Jones Newswires; +61 2 8272 4689;
david.fickling@dowjones.com
(Kris Maher of the Wall Street Journal contributed to this
article)
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