Australia's Macarthur Coal has rejected a sweetened $3.27 billion unsolicited takeover bid by US coal miner Peabody Energy, the world's largest private-sector coal company.

Brisbane-based Macarthur, Australia's second-biggest coal miner and supplier of low volatile pulverised injection coal to steel mills in Asia, Europe and Brazil, said today that its board rejected Peabody's offer since it undervalued the company.

It also noted that the highly conditional and uncertain nature of the revised indicative proposal means that it can have no reasonable confidence of the proposal being ultimately put to shareholders as an offer.

Macarthur also said that it would go ahead and seek shareholders approval at the scheduled 12 April meeting for its plan to take over its smaller domestic rival Gloucester Coal.

St. Louis, Missouri-based Peabody Energy had 9.0 billion tonnes of proven and probable coal reserves as of 31 December 2009 and revenues of $5.4 billion in 2009.

The company had, last week, made an unsolicited $3 billion bid for Macarthur on condition that the Perth-based miner not proceed with its proposed $765 million acquisition of Gloucester Coal, a company controlled by the Hong Kong-based commodities trader Noble Group.

The board of Macarthur, however, rejected the $13 a share offer, which valued the company at $3 billion, saying that Peabody's bid undervalued the company since its revenues will be boosted by the increased demand for coal from the emerging economies of Asia.

Noble holds an 87.7 per cent stake in Gloucester, while Macarthur's major shareholders are China's Citic Resources Holdings and steel makers Posco and ArecelorMittal, which collectively hold around 46 per cent of the company's stock.

Macarthur's major assets are a 73.3 per cent stake in Coppabella Mine and Moorvale Mine and a 74.66 per cent stake in the Middlemount Mine project.

Peabody's latest revised offer is A$13 for each Macarthur share and Citic, Posco and ArcelorMittal are highly unlikely to agree to anything less than $A20 per share since they had acquired the stake at a much higher price during the peak of the commodities boom in 2008, according to analysts.
 
But Noble, which holds an 87.7 per cent stake in Gloucester Coal, has taken the takeover battle to another dimension by proposing to acquire the rest of Gloucester for $12.60 a share in cash.

The offer, according to Noble, represents a 35.3 per cent premium to the closing price of Gloucester on 1 April.

Noble Group will get a 24.6 per cent stake in Macarthur if the deal to sell Gloucester Coal to Macarthur as well as the sale of a 25 per cent stake in Macarthur's Middlemount coal mine goes through.

It will also get an option to increase its stake in the Middlemount mine to 50 per cent, which would give it the right to sell 100 per cent of the output of the mine for life.

The board of Macarthur said today that it has told Peabody, "if Macarthur proceeds with its shareholders' meeting on 12 April 2010 and the resolution is approved, it will mean Macarthur's takeover offer for Gloucester and the associated transactions with Noble Group are likely to proceed, in which case Peabody's proposal will lapse".