June 30, 2008 / 8:43 AM / 9 years ago

UPDATE 4-POSCO in $404 mln Macarthur deal, rivals Arcelor

6 IN. DI LETTURA

(Adds background, updates shares)

By Miyoung Kim

SEOUL, June 30 (Reuters) - South Korea's POSCO said it would buy 10 percent of Macarthur Coal for $404 million, becoming the third overseas investor to hold a major stake in the Australian miner, in a move that could block any takeover of the company.

POSCO (005490.KS), the world's No.4 steel firm, said on Monday it had agreed to buy the stake in Macarthur Coal MCC.AX from the Australian group's founder and major shareholder Ken Talbot for A$20 per share, paying around A$420 million, to secure a steady supply of coal.

The price is an 11 percent premium to Macarthur's closing share price of A$18 on Friday.

The deal follows news at the weekend that top world steel maker ArcelorMittal ISPA.AS raised its stake in Macarthur, which supplies steel mills with more than a third of the world's pulverised coal, to 19.9 percent -- the most allowed in Australia before a firm must make a full takeover bid.

Arcelor also paid A$20 per share, bringing its total investment in Macarthur to A$843 million.

Posco and ArcelorMittal join China's CITIC Resources Holdings (1205.HK) as the company's top three shareholders, as overseas steel makers vie for large stakes in a growing number of Australian coal and iron ore miners in hopes of securing long-term raw material supplies.

Shares in Macarthur fell more than 6 percent as the purchases were seen as probably blocking any takeover.

Ken Talbot quit the board last week in a move viewed as pushing the $3.7 billion firm closer to a possible sale. Talbot's latest share sales will reduce his stake to around 4.7 percent.

"The acquisition ... is in line with ArcelorMittal's strategy of securing its supply of raw materials, in this case through the acquisition of a stake in a leading supplier of low volatile pulverized coal injection (PCI) coal," the Luxembourg-headquartered firm said.

POSCO said the purpose of its stake purchase was not for investment gains but to secure a stable supply of raw materials. It added that it had no immediate plans to raise its investment in Macarthur.

Takeover Uncertainty

Macarthur has seen its shares more than double this year to A$20.73 on surging demand for coal from China and India and bubbling takeover talk.

Analysts have said there had been high expectations Arcelor would make a full takeover offer for Macarthur, which helped push its shares to successive record highs since Arcelor first bought shares in May.

But the shares started retreating last week as talks between Arcelor and Macarthur over an unspecified transaction ended without a deal.

Chinese state-owned CITIC Resources Holdings, which has a 17.66 percent in Macarthur, said this month it may sell its stake, raising speculation for a full takeover bid for Macarthur. CITIC is an investment holding company with businesses ranging from natural resources to energy industries.

After rising as much as 8.9 percent, Macarthur shares fell 6.3 percent to A$16.87, while POSCO closed up 2.1 percent at 544,000 won.

"The Macarthur share price is coming off because both Arcelor and POSCO taking stakes effectively mean that it would be very difficult, if not impossible, for someone else to take over the company," Andrew Pedler, a Wilson HTM analyst said.

"Unless two of those three parties (Arcelor, POSCO, CITIC) want to sell their stake, it would not be possible to get control of Macarthur."

Under Australian takeover rules, a shareholder wanting more than 19.9 percent of a firm must make a full takeover offer.

The acquirer also has to obtain more than 90 percent of its target in order to trigger the compulsory acquisition of the remaining outstanding shares, indicating POSCO's 10 percent stake can be used to thwart a potential full takeover by Arcelor.

Global resources firms are increasingly buying stakes to block deals that may damage their supply and pricing relations. China's aluminium group Chinalco, for example, teamed up with Alcoa (AA.N) this year to buy a $14 billion stake in Rio Tinto (RIO.AX), a bid target of its Australian peer BHP (BHP.AX).

Red Hot Coal

Soaring coal prices, driven by tight supply and voracious demand from China and India, have put Australia's mining sector in play amid a global resources grab.

Macarthur's PCI coal is used as a cost saving measure by steel makers as it is crushed into a fine powder and injected into iron-making furnaces as a replacement for coke in the production of pig iron.

POSCO, which agreed earlier this year to pay Brazilian miner Vale (VALE5.SA) 65 percent more for its iron ore, has yet to conclude a similar deal with Australian miners, from whom it secures around two-thirds of its iron ore requirements.

Despite sharp increases in raw material costs, steel firms are struggling to fully pass on cost rises as global economic growth slows down, threatening to curb demand for steel products. (Additional reporting by Huw Jones in Brussels and Jonathan Standing and James Regan in Sydney) (Editing by Keiron Henderson, Jonathan Hopfner and Louise Heavens)

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