UPDATE: Macarthur: Peabody Considering Tax Impact On Takeover Plans

SYDNEY (Dow Jones) Peabody Energy Corp. (BTU) is "working through the impact" of the Australian government's planned tax changes on its bid for Macarthur Coal Ltd. (MCC.AU), Macarthur said Tuesday.

In a statement to the Australian stock exchange, Macarthur said that Peabody had completed its due diligence on its takeover bid Monday but had advised Macarthur that the tax plans had to be factored into its decision.

Peabody in April raised an initial offer for Macarthur, a Queensland-based coal miner, to A$16-a-share. But Macarthur's shares yesterday fell nearly 10% on fears that the government's planned 40% tax on resource industry super profits, unveiled Sunday, would encourage Peabody to reconsider its bid.

Macarthur said it is aware this creates uncertainty for shareholders and it would seek to engage with Peabody on additional information that Peabody has requested and on the tax issue.

At 0252 GMT, Macarthur's stock was down a further 3.1%, or 44 Australian cents to A$13.56.

Peabody's motives on the deal have been hard to divine but Paul Forward, an analyst with Stifel Nicolaus, questioned in a note Monday whether the tax plans significantly change the rationale behind the U.S. company's offer.

The takeover of Australia's biggest coal exporter would be a strategic move for Peabody to meet booming Asian demand, he said, while the U.S. company's dominant position in the market for coal used in steelmaking would allow it to pass any cost increases on to consumers.

"Peabody probably anticipated some form of a steep resource tax hike" when it set its A$16 per share bid, Forward said in the note, and details of the tax had been reported in the media for several months. "We are not convinced that it will abandon its bid in response to the tax proposal."

However, one banker familiar with the matter pointed out that, with the Australian miner's largest shareholder, China's Citic Resources Holdings Ltd. (1205.HK), lukewarm on the proposal, Peabody might in any case be unable to complete an offer and may be looking for an excuse to walk away.

Citic is seen as being less concerned about issues of pricing than in retaining its own influence with Macarthur through its 22.4% stake.

"I believe Citic would like to see Macarthur continue as an Australian-owned independent coal miner. That leaves them with more leverage, as opposed to just taking their $16 a share," the banker said.

Australia's proposed super-tax on mining assets would hit miners with profitable, mature projects particularly hard. Macquarie analysts said they see the change as reducing the present value of Macarthur's future cash flows by nearly 20%.

By David Fickling, Dow Jones Newswires; [phone]; [e-mail]