American coal miner Peabody is bracing itself for a long, drawn-out battle with Anglo American over a failed $3.8bn steelmaking coal deal, which it terminated in August after an earlier fire at one of the main assets.
Peabody last week told investors that it aimed to spend about $5m annually on legal fees in challenging the arbitration launched by Anglo, seeking compensation over the termination of the deal.
“Our analysis of the material adverse change (MAC), which was a prospective analysis, has been confirmed by events in the passage of time and the enormous loss of value we see. We have hired two prominent law firms, Jones Day and Quentin Manuel, who have done their own analysis and have joined us in their high level of confidence in our position,” Jim Grech, Peabody CEO, said.
“An arbitration process probably takes years. We are on the front end of that arbitration process, and I can’t predict how long it is going to take, but it will take a while before we get any resolution. But with every day that passes by we get more firm in our conviction of our position.”
Peabody pulled out of a deal to buy Anglo’s Australian steelmaking coal assets in August, dealing a blow to Anglo CEO Duncan Wanblad’s plans to simplify the group’s asset base to copper, iron ore and crop nutrients.
Peabody terminated the deal after a fire at the Moranbah North mine that halted production — an episode the company felt triggered a material adverse change.
A substantial share of the acquisition value, first announced a year ago, was associated with Moranbah North.
Peabody last month confirmed that Anglo had initiated arbitration proceedings in response to the termination of purchase agreements relating to Anglo’s steelmaking coal assets.
After termination, Anglo has returned $29m of the $75m deposit due to Peabody, and Peabody has demanded the outstanding portion to be returned without “further delay”.
“We expect the remaining deposit to be returned to us. We have asked for that in short order. It is not clear why only a portion of the deposit was returned,” Mark Spurbeck, Peabody CFO, said.
Anglo last week said it had started a process to find new buyers for its steelmaking coal business after the gridlock with Peabody.
Material adverse changes derailing deals and leading to protracted legal disputes, while not common, are nothing new in mergers & acquisitions, particularly in the mining sector.
Sibanye-Stillwater was last year ordered to compensate UK private equity firm Appian Capital Advisory for walking from a deal to buy its shares in Atlantic Nickel and Mineração Vale Verde, the respective owners of the Santa Rita nickel and Serrote copper mines in Brazil for $1.2bn.
Sibanye took the decision in 2022, citing a “geotechnical incident” at Santa Rita, which it deemed significant enough to undermine the commercial merits of the deal and justify terminating the agreement.
While the UK court found Sibanye wanting in its reasons for terminating the share purchase agreement due to the geotechnical event, it held that the miner had not done so wilfully.
A hearing to deal with the quantum of the damages Sibanye must pay to Appian is set for this month.
