Alpha Natural Resources Inc, the third-biggest coal producer in the US, is close to an agreement to buy Massey Energy Co for about $7 billion, according to a person familiar with the situation. The stock and cash offer values Massey, the largest Central Appalachian coal producer, at $68 to $69 a share, said the person, on the condition of anonymity because the talks are private. An agreement may be reached today and announced on January 31.
Massey shareholders will receive about 1.025 Alpha shares, along with $10 in cash for each share held, representing an almost 20 per cent premium from Massey’s closing share price on Friday. The boards of Alpha and Massey have been briefed on the details of the deal. Jeff Gillenwater, a Massey spokesman, didn’t return e-mail and telephone messages. Ted Pile, a spokesman for Virginia-based Alpha, declined to comment.
Alpha, the largest US metallurgical coal producer, has operations in Virginia, West Virginia, Kentucky, Pennsylvania and Wyoming’s Powder River Basin. Massey rose $2.84, or 5.2 per cent, to $57.23 in New York Stock Exchange composite trading on Friday.
Foundation purchase The Virginia-based Alpha bought Foundation Coal Holdings Inc for $2 billion in July 2009 to gain access to the low-cost thermal coal reserves in Wyoming, and controls about 2.3 billion tonne of reserves. Massey has about 2.8 billion tonne of reserves, 1.3 billion of which is of metallurgical or coking coal used to produce steel. Prices for steelmaking coal may surge 78 per cent to a record $400 a metric tonne for the three-month contract starting April 1. The flooding in Queensland, Australia, has disrupted supply, Bank of America Merrill Lynch said in a report on January 25.
The average premium for coal-industry deals announced in 2010 was 26 per cent, according to data compiled by Bloomberg. Walter Energy Inc a southern Appalachia producer of steelmaking coal, agreed to buy Canada’s Western Coal Corp last month for C$3.3 billion ($3.3 billion) to add reserves and boost production of the commodity.
Massey, with about 7,000 employees, has been operating for more than 94 years and was started with the Massey family selling coal door to door from a horse-drawn wagon. St Joe Minerals acquired a majority interest in 1974. Six years later St Joe and Royal Dutch Shell Plc formed Massey Coal Partnership, according to the company’s website. Fluor Corp bought St Joe Minerals, reorganising Massey into a subsidiary. Massey completed a reverse spinoff from Fluor in 2000.
Shareholders in May urged Massey to declassify, or end staggered terms for its board, a measure that proxy advisers Glass Lewis & Co LLC and Riskmetrics Group Inc’s ISS/RiskMetrics both recommended. “A classified board can entrench management and effectively preclude most takeover bids or proxy contests,” ISS RiskMetrics wrote in a May 5 report. Massey’s board ordered a review of strategic alternatives “to enhance shareholder value” in November after its annual meeting at the Greenbrier Resort in White Sulphur Springs, West Virginia.
Baxter Phillips became Massey’s CEO on December 31, after Don Blankenship retired. Blankenship, who began his career with the company as an office manager in 1982, had expressed reservations about the company’s potential sale. When he became president in 1990 Massey had about 700 million tonne of coal, he has said. Under his management it mined 763 million tonne of coal and he boosted its reserves to the 2.8 billion it currently holds.