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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Quentin Webb
LONDON (Reuters Breakingviews) - Buyers don't usually turn sellers halfway through an M&A deal. Yet ArcelorMittal has chickened out of a junior role in Peabody Energy's $5.1 billion takeover of Australia's Macarthur Coal. There may be some financial logic to the U-turn. But it makes the world's largest steelmaker, controlled by the über-rich Mittal family, look nervy.
The Mittals appear to have been betting that their tender offer with Peabody would fall short enough to give them control without paying a price robust enough to mop up all outside shareholders. Instead, Macarthur owners seem keen to sell.
Peabody, which tried and failed to buy Macarthur on its own last year, enlisted Arcelor to bid a second time through a 60-40 owned vehicle. If the offer had only secured 51 percent of Macarthur, Arcelor's outlay would have been minimal, since it already held a 16.1 percent stake in the target.
But China's Citic, which owned 25.2 percent and had opposed earlier bids, changed its mind and agreed to tender -- opening the door to a full takeover that would cost Arcelor about $1.2 billion. That moved Arcelor to exercise a put option in its agreement with Peabody. By selling its existing shares, Arcelor will now harvest about $815 million, Credit Suisse reckons.
There are solid strategic arguments for a simpler deal, with a single owner, as is now unfolding. Arcelor isn't splurging money on a minority interest that it can neither control nor consolidate on its books. For its part, Peabody insists it has the financial headroom to do a solo takeover, and should be able to reap the benefits more quickly.
But the Mittals are also clearly exhibiting a change of heart as the industry girds for a downturn. Arcelor shares have nearly halved this year, while the company idles furnaces across Europe. The company says it's in far better shape than it was during the 2008 slump: lower inventories, longer-dated debt, and more diverse profit streams. But moving a takeover into reverse at the last minute isn't usually a sign of confidence in the future.
-- On Oct. 25, ArcelorMittal said it had pulled out of a joint bid with Peabody Energy for Australia's Macarthur Coal. Arcelor, the world's largest steelmaker, said it had "elected to sell its interest" in the duo's 60-40 joint bid vehicle, PEAMCoal, to Peabody. Peabody said pursuing the takeover alone was "good news" and it would be able to fund a full takeover at "very manageable" debt levels.
-- Peabody shares dropped more than 7 percent in early trading but later regained ground. ArcelorMittal's Amsterdam-listed shares fell nearly 2 percent.
-- The Peabody-led bid was declared unconditional on Oct. 24, when the bidders said they held 59.85 percent of Macarthur shares. The offer runs until Nov. 11.
-- ArcelorMittal statement: link.reuters.com/teq64s
-- Peabody presentation: link.reuters.com/veq64s
Editing by Rob Cox and Martin Langfield