U.S. coal firm Peabody Energy Corp. raised its bid for Australia's Excel Coal Ltd. by nearly 12 percent to A$2 billion ($1.5 billion), but speculation about a rival offer pushed Excel shares above Peabody's new offer price.
Peabody, which raised its bid to placate Excel shareholders who complained it wasn't paying enough, also said it bought a 19.99 percent stake in Excel. It said it believed the purchase and sweetened bid would ensure a successful acquisition.
Raising the possibility of a bidding war, however, the Australian Financial Review newspaper reported on Tuesday that the coal unit of Anglo American was preparing a counterbid for Excel. The paper did not cite any sources.
Initially, you could say there is speculation that Anglo will come over, but Peabody increasing its stake and its bid by 12 percent, that's a serious move aimed at shutting anybody else out, Shaw Stockbroking analyst John Colnan said.
Excel's stock rose as much as 15 percent to A$9.65, taking it above Peabody's sweetened bid of A$9.50 per share. Peabody initially offered A$8.50 per share in July and won Excel board backing.
Anglo American officials in Brisbane could not immediately be reached for comment.
The new offer values Excel at 17 times projected earnings, based on Reuters Estimates, less than half the Australian sector average of 35.
Peabody has secured the necessary regulatory and third-party approvals, and arranged its financing for the acquisition. A shareholder meeting is scheduled for October 4.
The initial reaction by shareholders in Australia was that the price may not be fair and as a consequence it would be a challenge to get it done, said Richard Price of Westminster Securities in St Louis.
The increase (in Peabody's offer) reflects that and also the continuing strong markets in Asia.
Peabody President and Chief Executive Gregory Boyce said at the time that the acquisition of Excel would allow Peabody to gain a foothold in Australia, the world's largest coal exporting nation, and expand more into international markets.
Excel is one of the last big assets remaining (to buy) in Australia and to take a bigger piece of that market you've got to pay up for it, said Price. I don't think it's unreasonable given the potential (coal market) growth in India and China.
In Monday's statement, Peabody did not specifically mention any difficulties persuading Excel shareholders to approve the deal. It said both companies were well advanced in the integration process and they had confidence in the potential of the combined entities to create long-term shareholder value.
Peabody is the world's largest private-sector coal firm, with 2005 sales of 240 million tons of coal and $4.6 billion in revenue. Its coal fuels more than 10 percent of all U.S. electricity generation and 3 percent of worldwide electricity.
Excel's collieries would be a good fit with Anglo's metallurgical and thermal coal projects planned in Queensland and the Hunter Valley region of New South Wales state.
Excel has reserves of around 500 million metric tons of metallurgical and thermal coal.
In 2005/06, Australian coking coal prices for export to Asian steel makers leapt by 120 percent to $125 a metric ton, boosted by booming Chinese steel production.
Australian thermal coal export prices jumped 20 percent, before being rolled over at around $52 a tonne for 2006/07.
Peabody stock closed up 80 cents, or 2.14 percent, at $38.11 on the New York Stock Exchange.