Arcelor leaves Peabody with solo Macarthur bid

Tue Oct 25, 2011 9:35pm EDT
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By Robert-Jan Bartunek and Clara Ferreira-Marques

BRUSSELS/LONDON (Reuters) - ArcelorMittal ISPA.AS has pulled out of its joint $5 billion bid with Peabody Energy (BTU.N: Quote) for Australia's Macarthur Coal MCC.AX, days after the target's top shareholder accepted the offer and left the steelmaker with a higher-than-expected cost.

In a statement sent to the Australian stock market, the two sides said the world's largest steelmaker had "elected to sell its interest" in the bid vehicle, PEAMCoal, and would exit the joint venture, leaving Peabody to proceed alone with the takeover of the coal producer it has long coveted.

Peabody said the move was "good news," as completing the acquisition single-handed would help it reap the benefits sooner, but its shares fell over 7 percent in early trade, as surprised analysts and investors fretted over the strain on its finances and the potential need for a dilutive share issue.

Peabody, however, told investors there were no plans to issue equity any time soon and brushed off worries over the financing of a solo bid. Its leverage ratio is set to remain within its targeted 40 to 60 percent range even after taking full control, the largest U.S. coal producer said.

"We are prepared to finance this acquisition solely through cash and debt, and at debt levels that are very manageable," Peabody's Chief Financial Officer Michael Crews told analysts on a conference call.

The debt ratio would rise from a current 32 percent to "mid 50" percent if it takes 100 percent of Macarthur shares -- remaining within target, he said.

Peabody stock recovered some ground and closed down 3.1 percent at $39.66. ArcelorMittal shares, down more than 40 percent from the time of the bid in July, closed almost 2 percent weaker, underperforming basic resources peers battered by worries over Europe.

Peabody and ArcelorMittal, which bid A$16 per share for the coal miner, had said on Monday they already had a relevant interest in about 59.85 percent of the shares. The terms of the bid foresee an increase of the bid price to A$16.25 if more than 90 percent of Macarthur's shares are tendered -- a possibility after China's Citic backed the bid on Friday. Citic and subsidiary Citic Resources Holdings (1205.HK: Quote) held a combined 25.2 percent in Macarthur.   Continued...

<p>A truck is loaded at Macarthur Coal's Coppabella mine located about 760km (472 miles) northwest of Brisbane in this undated handout photograph. U REUTERS/Macarthur Coal/Handout</p>