As things stand, one bidder for Macarthur Coal, Peabody Energy, comes from the general’s homeland of America. Waiting in the wings is Citic, from a country he once planned to attack with nuclear weapons, China.
Not far away from the action is a company from Korea, Posco, the country that General Macarthur stoutly defended against a Chinese invasion, while teaming up the Americans is a friend with European and Indian roots, ArcelorMittal.
It is, to say the least, a delicious mix of players, motives and history, with the Australians on the board of the target company wondering whether they should behave like their company’s namesake and fight to the bitter end, or take the money and run.
If The Hog was on the Macarthur board he would be trousering the $15.66 on offer today, or selling immediately into the market at around $15.75, or hoping that a promised top-up price of $16 might appear.
The main reason for being a keen seller is that since hostilities broke out asset prices have been in free-fall around the world and if handled badly Macarthur Coal’s share price could crash back to less than $11 which is where the stock was before the shooting started.
What’s happened with Macarthur is that since its founder, Ken Talbot, died in a plane crash in Africa there has been a gathering of opposing forces on the share register, all keen to boost their exposure to the booming Asia Pacific coal market, and Macarthur Coal’s principal product, pulverised coal, for use in steel production.
Citic probably thought it was in the box seat to inherit full control of the company, building a 24.6% stake in the target. ArcelorMittal wasn’t far behind with 16.07%, and Posco was happy to cruise along with 7.02%.
Peabody has been the gatecrasher, largely because it recognises that the future of the global seaborne coal trade is in the Asia Pacific, and not the recession-riddled markets in the U.S. and Europe.
General Macarthur, famous for his aggressive style, would be smiling at the way Peabody has stormed the Australian coal company’s defences, reviving a $16 a share bid it tried on its own last year, but this time opting to team up with ArcelorMittal.
That means Peabody/Arcelor effectively starts the race with a 16.07 stake in Macarthur, and should find a friend in Posco given the historic American/Korean links. If that’s the case then the Peabody/Arcelor team might soon be able to claim a 23.09% stake in the target.
Citic, a classic Chinese conglomerate with close ties to the ruling elite in Beijing, has three options. It can take the money from Peabody and friends (all long-term enemies), or mount a counter bid, or sit on the sidelines, happy to ride along with its 24.6% stake in Macarthur, but a greatly reduced say in management decisions.
No doubt there is a committee meeting in Beijing today where Citic’s representative on the Macarthur board, Chen Zeng, is explaining the options during a leave of absence to avoid any potential conflicts of interest.
Knowing what the Chinese will do is the key question for everybody in this fascinating clash of commercial and historic interests, with the Macarthur board trying to devise a solution that pleases everybody – but which will probably end up pleasing nobody.
That’s why Peabody went hostile this week with its takeover off, effectively bypassing the Macarthur board and going directly to shareholders with Peabody boss, Gregory Boyce, describing his proposal as “compelling”
Boyce might be right, but since the Chinese have retreated to consider their position a high offer could emerge from Citic, if only to teach the American raider which super-power is in charge of the future.
But, to draw out a possible higher bid from Citic the Macarthur board needs to take a stronger stand than its current fence-sitting position of talking to everyone.
Once it strikes a deal with Peabody and agrees on $15.66, or the top-up $16 for breaking off talks, the Chinese have no choice but to act, or be locked in as a minority investor in Macarthur, or take the cash like everybody else – which might not be a bad option given the state of global markets.
