BTU: A Gamble to be Had

Merger Mayhem Ahead of August 19th

TLDR:

So, this isn’t going to be a full article as I’m still traveling this week. You can purchase call options on this trade if you find it interesting. Likely, this is going to court.

The Story in short:

Back in November 2024 BTU announced a $3.78 billion cash acquisition of Anglo American’s Australian steelmaking-coal assets. The market hated the merger. What was previously a $28 stock dropped to $11.

Everything changed on March 31, 2025 when the Moranbah North mine suffered a gas-ignition event that halted production indefinitely.

Five weeks later Peabody fired off a Material Adverse Change (MAC) notice to Anglo American, effectively warning it might walk from the deal if the mine wasn’t back on track within the contractually defined window. The stock traded up from $11 to its current $16.50.

The MAC notice triggered a 90-day cure period that expires on August 19, 2025. Management reiterated on its late-July earnings call that no revised deal has been reached and that a definitive update will come on that date.

Basically the deal is if you think the merger breaks, it will rerate the stock further up. Options are a good vehicle for that trade.

Peabody is severely undervalued trading at 50% of other similarly situated coal companies on a multiples basis due to this terrible merger. If they win the arbitration, there is a good return to be had.

With that, have a good evening. I’ll be back in the next two weeks with a full new idea writeup.

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