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Massey shareholders will receive 1.025 Alpha share for each Massey share in addition to $10 a share in cash, for a value of about $69.33 a share, the companies said. That represents a 21 percent premium over Massey's closing share price of $57.23 on Friday.

The deal -- the latest in a wave of consolidation sweeping the industry -- combines two of the biggest companies in the Appalachian coal business, creating a company with 110 mines and combined coal reserves of 5 billion tons. The deal is expected to be completed in mid-2011.

Surging Asian demand for coal to fuel steel mills and power plants has made the sector one of the hottest for dealmaking over the past year.

Alpha's acquisition of Massey is "truly transformational," Kevin Crutchfield, Alpha's CEO, said in a statement. "Together, we are committed to creating a stronger company that has the scale to capitalize on further growth opportunities, succeed in a changing regulatory landscape and maintain the absolute highest standards in safety and environmental excellence."

Massey, based in Richmond, Virginia, has been under scrutiny by federal mine safety regulators since an explosion last April 5 in one of its West Virginia mines that killed 29 workers, the deadliest U.S. coal mining disaster in 40 years.

Massey disputed claims by federal investigators that excessive coal dust fueled the deadly explosion and has said a natural gas leak caused the accident.

Massey's former chief executive, Don Blankenship, who had been seen as opposed to selling the company, left at the end of last year.

Blankenship led Massey for 20 years and had been a lightning rod for criticism from environmentalists for championing surface mining, and from unions for the company's use of non-union labor.

The merger with Alpha will create annual cost savings of $150 million by the second year of operations, the companies said.

Morgan Stanley was lead adviser on the deal. Citigroup was also an adviser, the companies said. Alpha obtained $3.3 billion in committed financing from the two banks, which along with existing cash balances is enough to cover the cash payment for Massey shares, the statement said.

Alpha said the deal valued Massey at $8.5 billion, a figure that includes debt.

Recent deal activity in the sector includes Walter Energy's more than $3 billion deal to buy Canadian rival Western Coal Crop, and Rio Tinto's$3.9 billion bid for Africa-focused coal miner Riversdale Mining Ltd.

(Reporting by Ann Saphir; Editing by Peter Cooney)