Massey Energy Agrees To Be Acquired By Alpha Natural For $8.5 Billion
Monday, January 31, 2011 10:43 AM

Alpha Natural Resources Inc. (NYSE: ANR) and Massey Energy Company (NYSE: MEE) announced that they have signed a definitive agreement under which Alpha will acquire outstanding shares of Massey's common stock on January 29, 2011.

Massey Energy Co. which has been under losses and criticism, after an explosion that killed 29 workers at a West Virginia coal mine in April, 2010, said that it has agreed to be taken over by Alpha Natural Resources Inc.

Alpha Natural Resources, Inc., formerly Foundation Coal Holdings, Inc., is a coal supplier in the United States. The Company is a supplier and exporter of metallurgical coal for use in the steel-making process, and a supplier of thermal coal to electric utilities and manufacturing industries. It operates 61 mines and 14 coal preparation plants in Northern and Central Appalachia and the Powder River Basin. In the last five years, Alpha's revenues have increased at a CAGR of 10 percent to $2.49 billion in FY 2009.

Alpha will acquire all outstanding shares of Massey common stock, subject to conditions including stockholder approval of both companies. Under the terms of the agreement, Massey stockholders will receive 1.025 shares of Alpha common stock and $10.00 in cash for each share of Massey common stock. Based on the closing share price of Alpha common stock as of January 28, 2011, the agreement placed a value of $69.33 per share of Massey common stock, or $8.5 billion in value and represents a 21% premium to Massey's closing price on Friday. Upon completion of the transaction, Alpha and Massey stockholders will own approximately 54% and 46% of the combined company, respectively.

The merger between the two companies will bring together their highly complementary assets, which includes more than 110 mines and combined coal reserve of approximately 5 billion tons, including one of the world's largest and highest quality metallurgical coal reserve bases. Both the companies believe that the combined entity will be stronger and well positioned to capitalize on strong global demand trends for coal including the metallurgical coal used in the steel manufacturing process, and thermal coal used by electric utilities companies in US and overseas.

The combined company will have a strong financial profile, with expected 2010 revenues of $6.9 billion and the highest free cash flow generation of any U.S. coal company, a responsible balance sheet, and significantly enhanced scale with a combined enterprise value of approximately $15 billion. Stockholders and customers will also benefit from the combined entity which is expected to exceed an annual run-rate of $150 million within the second year of operations, as well as anticipated cash flow accretion in the first full year of combined operations.

The losses incurred by Massey after the explosion, was the key factor leading to its sale. Massey lost a total of $130 million in the second and third quarters of FY 2010. It has not yet released fourth-quarter results. Alpha expects the deal will help the combined company cut costs by at least $150 million a year.

Massey Energy Company is a coal producer in the United States. It produces processes and sells bituminous coal of various steam and metallurgical grades, primarily of low sulfur content, through the 23 processing and shipping centers. Massey's stock has seen a major dip on the day of explosion in April last year, from the closing price of $54.69; its stock tumbled to $26.31 on July 2, 2010. However, investors sensing the possibility of a takeover pushed the stock higher since then. The closing price on January 28, 2011 was $57.23. I think that the merger will improve the functionality of both the companies, particularly for Massey, as Alpha has avoided any major disasters to happen in its mines, and the company was invited as a speaker at industry safety conference. The deal would help Massey to adopt a new culture that would establish safer operating procedures at the mines. The proposed merger is expected to close by mid-year.



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