Unlock Editor’s Digest Lock for Free
FT editor Roula Khalaf will select your favorite stories in this weekly newsletter.
Peabody Energy is coming out of a $3.8 billion contract to buy Anglo American coal mines for the unexpected closure of the trading flagship mine in a major setback to Anglo restructuring program.
US coal producers said Tuesday they had ended their agreement with Anglo due to what is considered a “material disadvantageous change” caused by the explosion at the Moranba North Mine. The Australian site has remained closed since the incident in March.
Peabody and Anglo disagreed with the “treatment” of so-called “material adverse changes” during the 90-day discussion period that expired this month, Peabody CEO Jim Greck said in a statement. “Peabody has chosen to terminate the contract,” he added.
In response, Anglo said on Tuesday it would begin arbitration to “seek for damages for the end of the law.” They claim that there has not been any unfavourable material changes as the mines and equipment are not damaged.
The unilateral termination was a blow to Anglo’s restructuring efforts, which was introduced last year as the company defended BHP’s £39 billion hostile takeover attempt.
Anglo CEO Duncan Wanblood said he was “very disappointed” that Peabody decided not to close the deal. “We believed that it would be better for all parties to avoid legal disputes,” he said in a statement Tuesday.
Wanblood said he is confident that Anglo still finds a buyer for the mine and has already received unsolicited interest in the mine in recent months.
The sale of Anglo caulking coal mines in Australia was widely expected to be the easiest and most advantageous step in the plan to take away four parts: nickel, diamond, coal and platinum.
However, the Moranba North closure for safety inspections since the March 31 explosion threw a spanner on the piece. Jeffries estimates that the mine alone is worth around $1.8 billion. This is about half the value of the transaction.
According to Jefferies Model, a scenario where Moranbah North will fully operate at full capacity by mid-next year will wipe out roughly $336 million from the value of the transaction.
The prices of steelmaking coal produced by the mines also fell after the contract was announced, with the benchmark price for Australian steel making-of calls down 11% this year.
Usually there is a high bar for businesses to use material adverse change clauses to get out of the transaction. Clauses may be used as levers to bring parties to the table to renegotiate transactions or to ensure price reductions.
Peabody shares rose 6% in pre-market trading in New York after the announcement. Its market capitalization is just over $2 billion, significantly less than the value of the coal trade.
Anglo stocks rose 3% in London.
