UPDATE: ArcelorMittal Surprises With U-Turn On Macarthur Deal

ArcelorMittal (MT), the world's largest steel maker, said Tuesday in a surprise announcement that it has decided to backout of its joint purchase of Australia's coal miner Macarthur Coal Ltd. (MCC.AU).

"ArcelorMittal has determined that it would no longer be appropriate to allocate substantial capital to the acquisition of a non-controlling, minority business interest," the company said in a statement.

"Given the unanticipated level of acceptances into the offer, ArcelorMittal believes that it is more appropriate to focus its capital elsewhere in its business," the company added, without disclosing what the unanticipated level of acceptance might be.

ArcelorMittal and the world's largest private sector coal company, U.S-based Peabody Energy Corp. (BTU), launched in July a joint take takeover offer for the world's largest biggest producer of pulverized coking coal, a low-cost raw material used to make steel.

In July, the two companies launched a bid through their joint-venture PEAMCoal Pty Ltd. to gain a 50.01% control of Macarthur shares. As of Monday the joint venture had received acceptances equivalent to a near 60% stake in Macarthur. Chinese state-owned investment firm CITIC Group, Macarthur's largest shareholder, also tendered into the A$16 a share offer.

ArcelorMittal, which owned 16.1% of Macarthur prior to the bid and owns a 40% stake in the joint venture, said it's now tendering its Macarthur shares to PEAMCoal Pty Ltd., noting that the decision to sell out of the deal was in accordance with the rights that ArcelorMittal originally negotiated with Peabody at the time the Co-Operation and Contribution Agreement was concluded.

The Luxembourg-based company is backing out of the deal because the "capital commitment that would be required to retain its Macarthur interest and grow it materially further, exceeds what is appropriate to allocate to a business that ArcelorMittal does not fully control and consolidate."

ArcelorMittal said PEAMCoal's plan to increase its offer to A$16.25 or $4.9 billion would stay in place if the joint venture is able to secure 90% of Macarthur by Nov 11. That would allow the joint venture to move to compulsory acquisition of the remaining shares under Australian takeover law.

ArcelorMittal said it will remain a shareholder in PEAMCoal until the termination arrangements are completed in approximately 90 days' time.

At 1419 GMT, ArcelorMittal's shares were down 1.9% or 29 eurocents at EUR14.14 a share while Peabody's shares were down 6.1% at $38.45 a share.

-By Alex MacDonald, Dow Jones Newswires; 44 20 7842 9328; [e-mail]