BHP Billiton spin-off South32 has cancelled its US$200 million acquisition of Peabody’s Metropolitan Colliery in the Illawarra, after the competition watchdog raised concerns over the deal.
The Australian Competition and Consumer Commission on February 23 pointed out that South32 and Metropolitan were two of the largest suppliers of coking coal to steelmakers in the Illawarra.
While South32 has explained that metallurgical coal is a global market, the ACCC has contended the Illawarra is its own regional market, and an acquisition of one major producer by another would not be good for competition.
“Australian steelmakers currently appear to benefit from competition between South32 and Metropolitan in the form of lower prices and a wider product range,” ACCC chairman Rod Sims said.
“… Coal suppliers outside the Illawarra region may not act as a strong competitive constraint on South32, largely due to the additional costs to the Australian steelmakers associated with transporting material volumes of coal from other regions, such as the Bowen Basin in Queensland,” he added.
Unimpressed with the watchdog’s assessment, South32 has abandoned the acquisition entirely.
“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 on April 18.
“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.”
South32 boss Graham Kerr said the company would continue to do what is best for its shareholders.
“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,” Kerr said.
The sides announced the deal last year, with a binding agreement signed on November 3, 2016.
The deal would see Peabody – then operating in the US under Chapter 11 bankruptcy – sell the Metropolitan Colliery and its associated 16.67% interest in the Port Kembla Coal Terminal for US$200 million and other fees associated with the commodity price over the next 12 months.
At the time, Kerr said the Metropolitan Colliery was “a natural fit within our portfolio”.
“The acquisition is consistent with our strategy to invest in high quality mining operations where we can create value,” Kerr said in November.
“The acquisition is consistent with our strategy to invest in high quality mining operations where we can create value.”