UPDATE: Macarthur Coal Rejects A$3.8 Billion Peabody Bid

Australian miner Macarthur Coal Ltd. (MCC.AU) has Tuesday rejected a A$3.8 billion takeover offer from Peabody Energy Corp. (BTU), which it said was opposed by its biggest shareholder and was unlikely to succeed.

The rejection looks likely to bring to an end five months of corporate maneuvering around the Brisbane-based miner, which began with its now abandoned takeover offer for Gloucester Coal Ltd. (GCL.AU) and associated transactions with Noble Group Ltd. (N21.SG).

Peabody last week lowered its prior offer pitched at A$16 per Macarthur share to A$15 a share after carrying out due diligence and factoring in the potential impact of the Australian government's proposed 40% Resource Super Profits Tax.

"The Macarthur board has met today and considered Peabody's further proposal and formed the view that based on the price and the conditions of the proposal, that it cannot reasonably be recommended to shareholders," Macarthur said in a statement.

The takeover target also said that after consulting with its three major shareholders--Citic Resources Holdings Ltd. (1205.HK), ArcelorMittal (MT) and Posco (005490.SE)--it had concluded that the takeover by scheme of arrangement was unlikely to receive the 75% shareholder approval it needed to succeed.

Citic, which is Macarthur's biggest shareholder with a 22.4% stake, provided the miner with written advice that it did not find the Peabody offer attractive, and that the long-term strategic value of the company was significantly greater than the cash on offer.

"The proposed terms of a shareholder agreement tabled by Peabody in March 2010 are not acceptable to Citic," the Chinese group said in an excerpt of the advice it gave to Macarthur.

One person close to Macarthur said ArcelorMittal, which has a 16.6% stake, has also raised concerns about the Peabody offer.

Posco declined to comment.

Macarthur does not believe the due diligence carried out by Peabody threw up any issues that justified the reduction in its offer and Chairman Keith De Lacy has said he does not believe the company should have to accept a discount on the basis of a proposed new tax, which may never be introduced.

Peabody was not immediately available for comment.

Unless the U.S. coal group changes its mind and decides to again lift its offer, the five months of corporate wrangling around Macarthur may well be over, with the miner to continue in its current form with its three major shareholders retaining stakes that make a takeover difficult.

On Dec. 22 last year, Macarthur announced its plans for a share-based takeover of Gloucester Coal and the associated purchase of a 25% stake in the Middlemount mine from Gloucester's majority owner Noble.

Macarthur, the world's biggest exporter of pulverised, or PCI, coal used in steelmaking, said the deal would give it scale and the diversity it needed to avoid a repeat of the turbulence of 2009, when a drop off in PCI demand rocked the miner.

But not all investors were convinced, with some worrying about the dilution of Macarthur's weighting to higher margin metallurgical coals.

Peabody took the initiative on March 31, making an initial approach pitched at A$13 a share that prompted a rival cash and share offer from New Hope Corp. (NHC.AU) and speculation that mining giant Xstrata Plc (XTA.LN) could also enter the fray.

Macarthur's eventual decision to delay a vote on the Gloucester deal while it considered an increased offer from Peabody saw Noble withdraw its support for the Gloucester and Middlemount deals.

And now, with Peabody and New Hope's offers rejected and a bid from Xstrata failing to materialize, Macarthur looks set to continue life in its current form, with perhaps the only major beneficiaries of the convoluted process being the corporate advisers to the various parties.

Macarthur shares fell sharply on news of the rejection of the Peabody offer, and were down 12% to A$11.77 at 0245 GMT, having earlier fallen to A$11.50.

-By Alex Wilson, Dow Jones Newswires: 613-9292-2094; alex.wilson@dowjones.com (Kyong-Ae Choi in Seoul contributed to this article)

Citic Resources (PK) (USOTC:CTJHY)
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