Share price of Excel Coal climbs above Peabody Energy offer - Marketplace by Bloomberg - International Herald Tribune

Shares in Excel Coal on Thursday soared beyond Peabody Energy's 1.83 billion Australian dollar, or $1.4 billion, cash offer for the firm, with some investors calling for a higher bid.
Peabody, the largest U.S. coal producer, offered 8.50 dollars a share for Excel, 1.2 percent higher than Wednesday's closing price, the St. Louis-based company said Wednesday in a statement. On Thursday, stock in Excel, whose board agreed to the takeover, rose 3.3 percent to 8.68 dollars.
"It's outrageous that the directors have accepted the offer," said Don Hamson, who helps manage $3.8 billion at State Street Global Advisors in Sydney, including Excel stock. "There will be a lot of unhappy shareholders out there."
The board, which includes six founders of the company, may have accepted Peabody's offer because earnings growth has been curbed by cost overruns at a processing plant at its Millennium mine. Some shareholders, who will vote on the offer in early October, said they would push for a higher premium to reflect the potential of new projects and rising demand from Asian steelmakers and power plants.
Excel, Australia's third-biggest coal- mining company by market value, forecast that net income would rise to about 120 million dollars in the year ending June 30, 2007, 25 percent below the mean estimate of 10 analysts surveyed by Thomson Financial. The company earned 95.1 million dollars in the year ended June 30, 2005.
The profit forecast "probably reflects some ongoing problems with the development of Millennium," said Warren Edney, a resources analyst at ABN Amro Australia in Melbourne. "There was some potential for slippage" in the project schedule.
The six founders on the eight-strong board are also employees with 47 percent of the company's stock, worth about 860 million dollars at the offer price. The company's managing director, Tony Haggarty, owns 10.9 percent, while the chairman, Roger Massey- Greene owns 5.5 percent and the company's deputy chairman, Richard Chadwick, owns 13.5 percent.
At the time of the initial share offer, Haggarty owned 14 percent of the company, worth 51.2 million dollars at the public offer price. His current stake is worth 199.5 million dollars at Peabody's offer price. Chadwick, whose original stake was worth 58.5 million dollars, now owns an interest worth 247.1 million dollars at Peabody's offer price.
"The directors have decided it's a good price and we are fully committed to the offer," Haggarty said. "We will not be doing anything to solicit any other offers but the law is such that other offers can come."
Excel hired Deloitte Corporate Finance to prepare an independent report for shareholders on whether the takeover was in their best interests in advance of a shareholder vote on the takeover, scheduled for early October.
Peabody's offer "does capture the value of our existing assets including most if not all of the development projects," Haggarty said Thursday. The recent narrowing in the premium "perhaps just reflects the fact that we've been trading very strongly."
Based on Thursday's profit forecast, the value of Peabody offer, at 15 times 2007 earnings, may be "quite attractive" in comparison with the multiples that larger, diversified resources companies such as BHP Billiton and Rio Tinto trade at, said Neil Boyd-Clark, who helps manage the equivalent of about $3 billion at ABN Amro Asset Management.
"You just have to look at major diversified companies Rio and BHP, which have very solid coal businesses of very good quality," Boyd-Clark said. "These companies are trading on multiples of closer to 12 times. I would have thought that 15 times for a company with the asset quality of Excel is very attractive."
The cost of completing a processing plant at Excel's Millennium mine has been increased twice this year and is now at 160 million dollars, up from 60 million dollars originally. The construction schedule has been set back due to weather and other delays. In February, Excel cut its full-year profit estimate by as much as 37 percent because of the delay and lower prices for the fuel.
Surging oil and natural gas prices have boosted demand for coal used in power generation. Supply curbs from Colombia and South Africa, rising power generation demand in Asia and a colder-than-average winter in Europe have combined to drive up spot prices.
Excel Coal's production is set to increase to 15 million metric tons in 2006, up from 5.6 million last year, and to 20 million in 2008. It produces coal both for power generation and steel production.
Peabody's offer "is not a lot given there's very little in the way of exposure to reasonable growth opportunities in the coal sector in Australia," Edney, of ABN Amro, said. "It will probably end up being a good deal for Peabody."