takeovers

Mining Deals Plunge in Australia After Rudd Tax Plan (Update3)
Share Business ExchangeTwitterFacebook| Email | Print | A A A By Rebecca Keenan

June 18 (Bloomberg) -- Mining takeovers in Australia, the biggest shipper of iron ore and coal, are set to fall to a five- year low after government plans to increase tax on the industry kicked up a hail of protest from the world?s biggest producers.

The level of transactions has slumped to 47 worth a total of $914 million this quarter, compared with 89 deals worth $9.11 billion a year ago, data compiled by Bloomberg show. The figure suggests the smallest number of deals since the first quarter of 2006 and the lowest value since the fourth quarter of 2005.

?We are certainly seeing a pullback in mining transactions,? said Tim Goldsmith, PricewaterhouseCoopers LLP?s Melbourne-based global mining leader. ?What the announcement of the super tax has done is provide uncertainty and while companies are uncertain they tend not to transact.?

The decline in takeovers supports predictions by Citigroup Inc. and Xstrata Plc, which joined with BHP Billiton Ltd. and Rio Tinto Group in campaigning against the 40 percent tax on mining profits. The planned levy has stalled investment and slashed support in public opinion polls for Prime Minister Kevin Rudd, who must hold an election within 10 months.

Rudd wants to start the tax from 2012, raising an estimated A$12 billion ($10 billion) in the first two years. The levy would give Australia the world?s highest tax rate for mining companies, according to the Minerals Council of Australia.

BHP rose 1.4 percent to 1,948 pence by 10:52 a.m. in London trading after gaining 0.8 percent in Sydney. Rio advanced 1.1 percent to 3,357 pence, matching the shares? gains in Australia. Xstrata climbed 1.2 percent to 1,023 pence in London.

Peabody Deal

Peabody Energy Corp., the biggest U.S. coal company, last month cut its takeover offer for Macarthur Coal Ltd. 6.3 percent to A$3.8 billion, citing the tax proposals. Macarthur rejected the bid and Peabody, which has slowed work on five expansions in Australia, said it will look elsewhere for investments.

?It?s hard to outline a corporate strategy and potential targets if you are a potential acquirer if there are two end numbers for the valuation -- one is with the tax and one is without the tax,? Alex Passmore, the head of metals and mining at Patersons Securities Ltd., said by phone from Perth. ?It makes good sense that the activity has slowed down.?

The value of mining takeovers declined 85 percent from the first quarter to the second quarter. On May 25, Australia?s benchmark index for miners hit its lowest since July 2009.

Lazard, Goldman

The decline in takeovers also tracked a drop in global mergers and acquisitions. The total value fell to $509.1 billion in the first quarter, from $532 billion in the final three months of 2009, which was the worst year for takeovers since 2003, as the Greek fiscal crisis rattled financial markets.

Across all industries there have been 181 transactions announced in Australia worth $13.1 billion this quarter to date, compared with 266 deals worth $18.8 billion a year ago.

The top advisers for announced Australian deals this quarter are Lazard LLC, Goldman Sachs JBWere Pty Ltd., UBS AG and JPMorgan Chase & Co. A year ago, the top advisers were Goldman Sachs, Macquarie Group Ltd., Lazard and Morgan Stanley.

Australia is the second-biggest producer of nickel and alumina, and the third-biggest producer of manganese and zinc, according to data compiled by UBS AG.

The government says its proposals will eventually spur investment by taxing profit rather than production. ?It?s the best thing to expand the industry long-term,? Rudd told the Australian Broadcasting Corp.?s ?7:30 Report? yesterday.

Trade Minister Simon Crean said last month the tax would result in a 6 percent to 7 percent increase in mining investment in Australia, based on economic models used by the government.

Losing Relevance?

Australia risks losing its relevance as a market for investment in global mining companies, according to Citigroup.

?Given the opportunities for global investors to look at non-Australian assets, we believe that the implementation of resource super profit tax could drive foreign interest in miners from Australia into other regions,? Sydney-based Citigroup analyst Craig Sainsbury wrote in June 17 report. There may be consolidation between producers within Australia, he wrote.

Mining companies? earnings may be cut by almost a third when the tax starts in 2012, Moody?s Investors Services said last month. The tax would be broadly credit negative for the sector and raise uncertainty for some companies over the short- to-medium term, Moody?s said this month.

?It?s a sovereign risk issue and that reflects poorly on Australia as an investment location,? Passmore said.

To contact the reporter on this story: Rebecca Keenan in Melbourne at [email protected]