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Massey-Alpha merger challenge hits state Supreme Court

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CHARLESTON, W.Va. -- A group of Massey Energy shareholders filed a last-ditch petition with the West Virginia Supreme Court on Wednesday, seeking to stop the $8.5 billion transaction that would make Massey part of Alpha Natural Resources.

Justices are keeping records of the case hidden from the public until they consider a motion to seal them.

However, documents in a similar case -- made public Tuesday by a Delaware judge -- reveal a wealth of new details of the events between the April 5, 2010, Upper Big Branch Mine disaster to January's announcement that Alpha would seek to acquire Massey.

Among other things, the Delaware records show that Alpha CEO Kevin Crutchfield was prepared to provide Massey's now-retired and controversial chief executive, Don Blankenship, with a job as an Alpha consultant.

At the same time, the records show that experts who examined Massey as part of Alpha's "due diligence" for the transaction found major problems with Massey's safety practices and the company's management.

"The entire Massey organization appears to be managed by an autocratic central command and control structure," says one Alpha document quoted in the court records. "This can be seen in all facets of the organization and results in senior operating management being involved in lower level mine issues and decisions.

"The Massey culture is driven by a strong focus on production and its associated components with other facets of the operations such as employee safety and regulatory compliance receiving minimal consideration," the document says.

"The underground site visits indicated a strong cultural emphasis on production first with compliance and outby maintenance on a non-priority basis," it says. "The plants are generally poorly maintained and have been for a period of time."

In the West Virginia and Delaware lawsuits, certain Massey shareholder groups are seeking to block the Alpha buyout as part of an effort to hold Massey executives and board members responsible for the Upper Big Branch disaster and alleged mismanagement of the Richmond, Va.-based coal giant.

Documents in the Delaware case allege that the mine disaster has reduced Massey's economic value by more than $1 billion, along with more than $165 million in out-of-pocket costs and $320 million in lost coal revenues.

In both cases, lawyers for Massey shareholder groups argue that top Massey executives and board members arranged the sale to Massey to avoid any personal liability for the deaths of the 29 miners killed in the Upper Big Branch explosion. They also allege that the proposed buyout greatly undervalues Massey, and that Alpha and Massey have not disclosed the complete motivation for and history of the proposed deal to shareholders.

The two companies have scheduled separate shareholder meetings for June 1 to seek approval for the transaction.

The merger also faces a lawsuit in Boone Circuit Court, in which families of some of the miners who died at Upper Big Branch object that Massey insiders will pocket $196 million in the deal, but money to pay the wrongful-death claims of the families will be put at risk.

Lawyers for the Delaware shareholder groups alleged that Alpha is attempting to acquire Massey "on the cheap" because of the mine disaster. They say Massey board members realized they had no choice but to sell because the disaster had "crippled the company" and destroyed its credibility with regulators, shareholders and the public.

Attorneys for Massey management and for Alpha argue that the transaction is a good deal that was reached after a long and difficult negotiation and what amounted to a public auction of Massey.

The legal showdown over the merger comes less than a week after a strongly worded report by independent investigator Davitt McAteer blasted Massey, blaming the company's troubled safety practices for the Upper Big Branch deaths.

This afternoon, a Delaware judge is scheduled to hear arguments on the motion for a preliminary injunction to block the merger.

In West Virginia, Kanawha Circuit Judge Charles King had called off a Wednesday hearing on a preliminary injunction requested in the case pending in his court. Lawyers for the California State Teachers' Retirement System, a Massey shareholder and lead plaintiff in the West Virginia case, then turned to the state Supreme Court.

After a private conference Wednesday, justices set a deadline of noon Friday for responses to the injunction motion. The court is currently expected to consider the case in another closed-door conference on Tuesday, after the Memorial Day holiday.

Justice Brent Benjamin, whose election bid in 2004 was funded in large part by Blankenship, has recused himself from the matter.

In the Delaware case, legal briefs by the shareholder groups cite depositions of Blankenship that show Blankenship and his replacement, Baxter Phillips, both opposed the sale to Alpha. Both said the deal undervalues Massey. Reach Ken Ward Jr. at kward@wvgazette.com or 304-348-1702.


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