UPDATE 1-Macarthur drops as Australia tax threatens takeover

* Macarthur shares drop 10 pct

* Update on Peabody due diligence expected Tuesday
earliest
(Adds source comment)

MELBOURNE, May 3 (BestGrowthStock) – Shares in miner Macarthur Coal
(MCC.AX: ) tumbled on Monday as investors bet its suitor Peabody
Energy (BTU.N: ) would scrap a $3.8 billion offer after Australia
proposed to slap a massive new tax on miners.

Macarthur’s shares sank 10 percent to a low of A$13.86, the
lowest since Peabody first announced a bid on March 31 and well
below Peabody’s revised offer of A$16 a share, or A$4.1
billion.

Two fund managers said Peabody may hesitate to go ahead
with its offer for Macarthur, coveted for its pulverised coal
— a cheaper, cleaner coal that steel makers want — as returns
on a deal would be cut by the proposed super tax on resources
profits.

“Whatever the probability that any current takeover would
fail has definitely increased as a result of this uncertainty,”
said Tim Schroeders, a portfolio manager at Pengana Capital.

Peabody faces a deadline later on Monday to complete a
review of Macarthur’s books before deciding whether to go ahead
with its offer.

“The next step is for them is to put forward a proposal or
not, which in the event they do, the (Macarthur) board will
consider,” Macarthur spokeswoman Genevieve Fraser said.

Macarthur would give the next update on Tuesday, she said.

A source close to the deal said Peabody was finishing its
due diligence on Macarthur but had no further comment. Peabody
spokespeople did not return phone calls.

Besides the potential impact from the proposed new
resources tax, due to be implemented from 2012, one of the
biggest hurdles to Peabody’s takeover plan is winning support
from Macarthur’s top shareholder, China’s CITIC Resources
(1205.HK: ).

Support from CITIC Resources, holding 22.4 percent of
Macarthur, is key because under Peabody’s proposal, called a
scheme of arrangement, the takeover needs approval from 75
percent of votes cast.

While Macarthur’s second- and third-largest shareholders,
steel giants ArcelorMittal (ISPA.AS: ) and South Korea’s POSCO
(005490.KS: ), have tentatively backed Peabody’s offer to allow
them to retain their stakes, CITIC Resources has not expressed
any support for Peabody.

Stock Market Money

(Reporting by Sonali Paul; Editing by Ed Davies and Koh Gui
Qing)

UPDATE 1-Macarthur drops as Australia tax threatens takeover