Business Blog Posts

The deal -- the latest in a wave of consolidation sweeping the industry -- creates the second largest U.S. coal miner by market value, holding 110 mines and combined coal reserves of 5 billion tons. The deal is expected to be completed in mid-2011.

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.

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. After the acquisition, Alpha will be the largest supplier of metallurgical coal, which is used in steel making, in the United States.

Alpha Chief Executive Kevin Crutchfield said in an interview the deal would create a global player in metallurgical coal -- a commodity the company believes should continue to generate profits for some time.

"In terms of the next decade, the world is going to remain structurally undersupplied in high-quality metallurgical coal. There's just not going to be any massive new supply coming on," Crutchfield said.

That, coupled with expectations of continued growth out of economies like India and China, should keep the market for the fuel strong, he said.

Massey, based in Richmond, Virginia, put itself on the block in November after posting a wider-than-expected third-quarter loss as a result of the explosion that killed 29 miners at its Upper Big Branch mine in West Virginia in April.

The company has been under scrutiny since the accident, which was the deadliest U.S. coal mining disaster in 40 years. The U.S. Justice Department and the state of West Virginia are investigating the blast and the company could face litigation from the families of the 29 miners.

In the months following the accident, Massey shares lost more than half their value, hitting a low of $25.87 in July. They have since bounced back above pre-explosion levels, helped by reports the company would likely be acquired.

COMFORTABLE WITH RISK

Crutchfield said that during the run-up to the deal, Alpha was able to gain access to Massey records and executives to study the risk involved in the purchase.

"At the end of the day, we were actually able to get comfortable with the exposed risk," he said, noting he believed Massey's estimate of up to $150 million in losses related to the blast was "appropriate."

Massey took a charge of $128.9 million last year in order to cover costs from the explosion, including workers' compensation and other compensation for the families of the miners and expected costs from litigation.

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