BMO says ‘successful MACs are rare’ but delay would be positive for Peabody

BMO Capital analyst Katja Jancic notes that Outperform-rated Peabody (BTU) has announced it notified Anglo American (NGLOY) of Material Adverse Change impacting the planned acquisition of met coal assets related to issues involving the Moranbah North mine that was shut down following a gas ignition event on March 31 and currently remains inactive. Meanwhile, Anglo responded, stating it does not believe this is a MAC. Noting that “successful MACs are rare,” the firm pointed out that in recent history, it can recall only two events that triggered a MAC clause in the metals & mining space, with one of them ending in litigation. Given the Moranbah mine event coincides with the currently soft operating environment and a more challenging debt market, it is not entirely surprising that Peabody is taking action, BMO says, although its understanding has been that this event on its own does not constitute a MAC, and given Anglo’s response, this will likely be challenged. Overall, while many unknowns remain and this is a complex situation, in the near term the move is likely to, at a minimum, delay the transaction, which is somewhat positive for Peabody, in the firm’s opinion.