A clash of world steel giants in Macarthur Coal threatened yesterday, but then the shares fell sharply yesterday afternoon to end at $16.87, down $1.13 or more than 6%.
A signal that the market battle was taking a breather, or not going to happen?
The latter probably as the two big steel makers now effectively control MCC.
The world’s biggest steel group, ArcelorMittal increased its stake in Macarthur Coal (MCC) to just under 20%, days after talks on a possible takeover ended without a deal.
Also South Korea’s giant Posco group, the world’s fourth largest steelmaker, said it has bought a 10% stake in Macarthur at a cost of well over $420 million.
That left punters thrilled at the prospects of a race to 50.01% and control, plus big profits for all those hedge funds long on Macarthur shares.
ArcelorMittal increased its stake from 14.9% to 19.9% by paying $US204 million ($212 million) for an extra 5% from Talbot Group Holdings, owned by Macarthur founder Ken Talbot, who left the board last week, a day before Arcelor ostensibly pulled out of talks. Mr Talbot is left with around 4.9% of the company he founded.
Posco also bought its stake from Talbot, paying $20 a share. Posco said the deal was conditional upon approval from its board meeting scheduled next month.
Macarthur shares, which closed at $18 on Friday, jumped 9% to $19.60, but then slid in afternoon trading to close at $16.87, down $1.13 on the day.
It was an unexpected finish to a day of trading that was shaping up as an old fashioned takeover battle.
But it wasn’t to be. The sharp fall in the afternoon is a signal the market says there won’t be any takeover battle and the likes of Arcelor and Posco might be content to sit there and dominate Macarthur and protect their supplies of pulversised coal.
ArcelorMittal can’t move any further without launching a bid, but will need Federal Government approval to do so. Posco is constrained for the same reason.
ArcelorMittal said the purchase was in line with recent moves to secure its own supplies of key raw materials as global prices soar. Macarthur supplies more than a third of the world’s pulverised coal, which is used to heat steel furnaces. Arcelor is Macarthur’s largest single customer.
ArcelorMittal last month approached Macarthur about a potential takeover, but talks between the two companies ended last week without a deal. Macarthur said it welcomed ArcelorMittal as a substantial shareholder and wanted a long relationship with it as a customer.
ArcelorMittal – which produces 10% of the world’s steel, has now spent $840 million building up its stake in MCC. This values the company at $4.17 billion, but on last night’s close, the market valuation is around $3.8 billion.
Also of interest yesterday was the suggestion floated in the Financial Times that Arcelor is looking to enter the battle for Rio Tinto and has snapped up a 1% stake.
Rio is facing a 3.4 share offer from BHP Billiton and is vigorously defending the bid.
The bid is worth about $165 billion at current share prices. Rio shares rose $3.46 yesterday on the story to $135.50 while BHP was up 81c at $43.70, which values Rio at $148.58. Clearly the market remains unconvinced that the bid will succeed and the Arcelor story will add to that impression.
The Fin Times story said the move by Arcelor founder, Lakshmi Mittal, is part of his new strategy of trying to secure iron ore and coal supplies (he’s a bit late).
The move comes as Goldman Sachs, his adviser, announced that he had joined the board of the Wall Street bank. Goldman Sachs is the adviser to BHP in its Rio battle (and is advising BG Group in its bid for Origin), so is there a possible deal involving a joint move on Rio?
Certainly a steelmaker joining a rival iron ore producer would worry competition regulators around the world and should worry the Australian Government because of a possible conflict of interest that would act against the Australian national interest.
The acquisition of the MCC holding from Mr Talbot is in line with the thinking behind the eyeing off of Rio Tinto.
ArcelorMittal’s has a strategy of securing its supply of raw materials, in this case through the acquisition of a stake in a leading supplier of low volatile pulverized coal injection coal, according to the company’s statement about lifting its MCC stake.
