South32 (S32) revealed yesterday that it had decided to bail on its proposed acquisition of a coal mine near Wollongong, south of Sydney from Peabody Energy, rather than make meet concessions to domestic steelmakers suggested by the ACCC to allay competition concerns.
The miner said it was not prepared to make “significant concessions” toward Australian steelmakers (BlueScope and Arrium) in order to get the deal over the line, meaning it still remains on the lookout for its first acquisition since being spun out of BHP Billiton in May 2015.
South32′s proposed acquisition came under scrutiny from the ACCC on concerns it could lessen competition in the supply of coking coal to Australian steelmakers given most of the country’s reserves are already controlled by industry giants such as BHP, Mitsui and Anglo American.
In February, ACCC chairman Rod Sims that while the ACCC recognised coking coal was a globally traded commodity, local competition between South32 and Metropolitan was important in setting the prices paid by the steelmakers.
“The ACCC’s preliminary view is that coal suppliers outside the Illawarra region may not act as a strong competitive constraint on South32, largely due to the additional costs to the Australian steelmakers associated with transporting material volumes of coal from other regions, such as the Bowen Basin in Queensland," Mr Sims said. That view prevailed and it is clear the ACCC refused to soften its stance.
South32 said in a statement to the ASX that to make concessions in favour of Australian steelmakers, including Bluescope Steel (also a former BHP spin-off, as is Arrium), “would be contrary to the global market in which metallurgical coal producers compete and would adversely affect the value proposition of the acquisition.”
South32′s CEO, Graham Kerr said in the statement that to have proceeded “with the acquisition in light of the anticipated concessions would have compromised the merits of the transaction and this is not something we are prepared to do.”
The $US200 million deal would have seen South32 acquire the Metropolitan Colliery, located at Helensburgh, and a 16.7% in the Port Kembla Coal Terminal (loader) from Peabody which has just emerged from nearly a year in US bankruptcy protection.
Peabody President, Glenn Kellow said in a statement: “We are surprised that South32 and the ACCC reached an impasse, given both the physical synergies and the global nature of the metallurgical coal markets.”
“On the other hand, we see continuing opportunities given Metropolitan’s quality coking coals and port location, and our objective will be to operate the mine while maximizing returns in the international marketplace.
He said Peabody would retain the mine and its interest in the Port Kembla Coal Terminal.
South32 shares were down 1.4% at $2.79 at the close having been off as much as 2.5% earlier in the day.
