SOUTH32 has pulled the plug on a proposed $200m acquisition of the Metropolitan Colliery and 16.67% stake in the Port Kembla Coal Terminal from Peabody Energy Corp. saying it was not prepared to bow to concessions imposed by Australia’s competition authorities.
The failure of the deal will be hard to take for South32 as the bid for Metropolitan would have been its first merger and acquisition activity success after being outbid by China Molybdenum for Anglo American’s niobium and phosphate business in Brazil.
“To proceed 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,” said Graham Kerr, CEO of South32.
“We suspect the concessions related to some level of sustained price discounting off the benchmark coking coal price and/or a commitment to domestic volumes plus maintaining the current product mix, reducing the potential to blend products with Illawarra,” said Macquarie in a note.
Difficulties with the proposed transaction were apparent following a statement by the Australian Competition and Consumer Commission (ACCC) on February 23 in which it said the proposed acquisition “… may substantially lessen competition in the supply of coking coal to Australian steelmakers”.
South32 said today that metallurgical coal is a globally traded commodity. “Given this, South32 is not prepared to make significant concessions in favour of Australian steelmakers that would likely be required to mitigate the competition concerns,” the company said.
“To do so would be contrary to the global market in which metallurgical coal producers compete and would adversely affect the value proposition of the acquisition,” it added.
Metropolitan is an underground mine that has a capacity to generate 2.3 million tonnes of coal a year. It’s located only 10km east of South32’s Appin Colliery mine.