M&A activity remains hot in coal sector
Rio Tinto, Mitsubishi Bid $1.55 Billion for Rest of Coal & Allied
Coal & AlliedIndustries Ltd. reports are arranged for a photograph at the company'sheadquarters in Brisbane, Australia. Buying Coal & Allied will giveLondon-based Rio and Mitsubishi full control of three coal mines in theHunter Valley in Australia’s New South Wales state as prices surge.
Coal & Allied IndustriesLtd. reports are arranged for a photograph at the company's headquartersin Brisbane, Australia. Buying Coal & Allied will give London-basedRio and Mitsubishi full control of three coal mines in the HunterValley in Australia’s New South Wales state as prices surge.Photographer: Eric Taylor/Bloomberg
Rio Tinto Group, the world’s second-biggest mining company, and Mitsubishi Corp. (8058) offered A$1.49billion ($1.55 billion) for the shares in Coal & AlliedIndustries Ltd. (CNA) they don’t own to take the coal miner private.
Rio and Mitsubishi, which own stakes of 75.7 percent and10.2 percent respectively, made an initial offer of A$122 ashare, 34 percent more than the Brisbane-based company’s closingprice of A$91, Coal & Allied said today in a statement. The bidvalues Coal & Allied at A$10.6 billion, the company said.
Buying Coal & Allied will give London-based Rio andMitsubishi full control of three coal mines in the Hunter Valleyin Australia’s New South Wales state as prices surge. The movecomes after Rio’s A$3.4 billion acquisition of Riversdale MiningLtd. last month and Peabody Energy Corp. and ArcelorMittal’sA$4.7 billion pending bid for Macarthur Coal Ltd.
Rio and Mitsubishi’s “bid reflects the dynamic of themarket that we’re in with lots of interest in coal assets,”Michael McCarthy, chief market strategist at CMC Markets inSydney, said by phone. “This is an attempt to deliver a knock-out bid and one that is high enough for the Coal & Allied boardto recommend.”
Coal & Allied shares gained 29 percent to A$116.20 at the4:10 p.m. close of Sydney trading. They traded as high asA$130.10 this year on Jan. 28. Rio Tinto fell 4.7 percent toA$68.63, compared with a 2.9 percent drop in the S&P/ASX 200benchmark index.
Cash Flow
Rio Tinto generated $18 billion in cash from its operationsin the year to Dec. 31, compared with a cash flow of $9.6billion a year earlier, data on the Bloomberg shows. Rio hasworked to repair its balance sheet, with the help of surgingcommodity prices as well as more than $11 billion in asset sales,after debt ballooned 19-fold with the purchase of aluminumproducer Alcan Inc. in 2007.
Including Coal & Allied’s A$1.20 a share dividend, theoffer values the target at 21.9 percent more than its one-monthvolume-weighted average price, Rio Tinto said.
Perpetual Ltd., Coal & Allied’s third-largest shareholder,supports the bid in the absence of a higher offer, it said in ane-mailed statement, meaning the companies have agreements formore than 90 percent of the target.
Record Prices
Pending and completed takeovers in the coal sector totaled$11 billion in the second quarter this year as coal prices tradenear record highs with an average premium of 39 percent, themost in at least 10 years, according to data compiled byBloomberg.
Should the bid be successful, Rio will end up with 80percent and Mitsubishi 20 percent of the target, Coal & Alliedsaid. Perpetual now owns a 6.32 percent stake in the company,according to data compiled by Bloomberg. Coal & Allied is beingadvised by Greenhill Caliburn and Gilbert & Tobin.
“The proposal response committee makes no recommendationto shareholders at this stage other than that the Coal & Alliedshareholders do not need to do anything in relation to theindicative proposal,” Coal & Allied said.
Coal prices have surged on rising demand to feed powerstations and steel mills in China, the world’s largest user ofcoal, and amid global production disruptions, including recordflooding in Queensland.
The offer is also subject to Rio Tinto and Mitsubishicompleting certain arrangements, Coal & Allied said.
To contact the reporter on this story:Elisabeth Behrmann in Sydney atebehrmann1@bloomberg.net