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Alpha-Massey buyout approved

Read more from the Coal Tattoo blog.

CHARLESTON, W.Va. -- Shareholders of Alpha Natural Resources and Massey Energy have approved the $8.5 billion deal for Alpha to acquire Massey in what has become one of the more controversial coal industry transactions in years.

"At their respective special meetings of stockholders, Massey stockholders voted to adopt the merger agreement," Alpha said in a statement, "and Alpha stockholders voted to approve an amendment to Alpha's certificate of incorporation to increase the number of shares of common stock that Alpha is authorized to issue and also voted to approve the issuance of shares of Alpha common stock to stockholders of Massey."

Alpha and Massey expect to close the transaction later today.

Many shareholders had likely already cast ballots through the mail, though the companies scheduled simultaneous shareholder meetings at a Marriott resort in Kingsport, Tenn., near Alpha's Abingdon, Va., corporate headquarters.

Shareholder meetings were being held just one day after courts in West Virginia and Delaware declined requests from some ownership groups to block the sale over allegations the deal undervalues Massey and was pushed through by Massey management to insulate themselves from liability for the Upper Big Branch Mine Disaster.

"Admittedly, there is a basis to conclude that the Massey board perceived that the company's ability to prosper independently was impaired by its questionable reputation for worker and environmental safety, and that the best way to secure value was to sell the company at a premium to an industry rival with a better reputation in those areas," Vice Chancellor Leo Strine Jr., a judge in Delaware's business court, wrote in a 79-page ruling issued Tuesday. "But the record does not suggest that it is likely that the merger was inspired solely, or even in any material way, by a desire of the Massey directors ... to insulate themselves from liability."

The deal gives Alpha the second largest private coal reserve in America, with about 5 billion tons. The company would become one of the top suppliers of steel-making coal in the world.

Combined with Massey, Alpha will operate about 150 coal mines and 40 preparation plants, more than any other U.S. coal company. The company would employ 14,000 people, including about 7,000 in West Virginia.

Last year, Alpha produced about 82 million tons of coal, with more than half of it coming from the company's two huge surface mines in Wyoming. Massey produced about 37 million tons of coal in 2010, with two-thirds of that being mined in West Virginia.

Under the terms of the merger agreement, Massey stockholders will receive 1.025 shares of Alpha stock and $10 in cash for each share of Massey stock. Alpha will own 54 percent of the combined company and Massey will own 46 percent.

Alpha's successful bid valued Massey stock at $69.33 a share, or more than 20 percent over Massey's closing price the day before the deal was announced in late January.

The transaction has a total value of about $8.5 billion, with Alpha paying $7.1 billion in cash and stock and also assuming about $1.4 billion in debt, company officials have said.

One study, by an analyst working for families of the miners who died at Upper Big Branch, said that Massey insiders -- including now-retired CEO Don Blankenship -- would pocket $196 million in payouts and other committed benefits if the transaction is approved.

Technically, only Massey shareholders are being asked to formally approve the merger agreement. Alpha stockholders are voting on a proposed amendment to their company's certificate of incorporation to increase the number of authorized shares of Alpha common stock to 400 million shares and approve the issuance shares pursuant to the merger agreement.

While smaller than Alpha, Massey is probably better known and certainly more controversial. In the last two years alone, Massey has paid the largest fines ever for a coal-mining death case and for water pollution violations by a mining operator -- $4.5 million for the fatal Aracoma Alma No. 1 Mine fire and $20 million in a water pollution deal with the U.S. Environmental Protection Agency. Massey's operations in Southern West Virginia have also been the main target of a two-year-old peaceful civil disobedience campaign against mountaintop removal mining.

While Alpha has avoided a huge disaster like Upper Big Branch, the company narrowly avoided such an incident in May 2009, when seven workers were trapped underground for more than 24 hours by a mine flood in Mingo County. Federal regulators cited the company for improper maintenance of outside drainage systems that allowed heavy rain to inundate the underground tunnels.

And in January 2007, Alpha's Brooks Run subsidiary was cited for major safety violations following a roof collapse that killed two workers at an underground mine in McDowell County. More recently, an Alpha contractor admitted lying to federal investigators about training practices at that same operation, the Cucumber Mine. And earlier this year, another man pleaded guilty to lying about having a foreman's license when performing safety examinations at Alpha's Poplar Ridge Mine in Webster County.

Like Massey, Alpha boasts that most of its coal production comes from "union free" operations. But, two unionized underground mines in Pennsylvania, purchased in July 2009 from Foundation Coal, are Alpha's largest producers outside of Wyoming's Powder River Basin.

The buyout deal has also drawn scrutiny because of Alpha's plans to hire several top Massey executives and mine managers who played major roles in overseeing the Upper Big Branch Mine prior to the April 5, 2010, explosion that killed 29 miners.

Reach Ken Ward Jr. at kward@wvgazette.com or 304-348-1702.


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