Coal producer Alpha Natural Resources, Inc. (ANR) said it signed a definite agreement to buy peer Massey Energy Co. (MEE) for a cash-and-stock deal worth $8.5 billion, which would result in the largest coal company in the U.S. Central Appalachian region.
As per the agreement, Massey stockholders will receive $10.00 in cash plus 1.025 shares of Alpha for each Massey share. The offer value of $69.33 per share represents a 21 percent premium to Massey's closing price on Friday. Following the completion, Alpha will own approximately 54 percent of the company, while Massey will hold the remaining 46 percent.
The transaction, which is expected to close in mid-2011, has been approved by boards of both companies, who have also recommended for their respective shareholder approval.
The new entity is expected to generate revenues on a pro-forma basis of nearly $6.9 billion, and synergies are expected to exceed an annual run-rate of $150 million within the second year of operations.
The proposed combination of the two biggest companies in the Appalachian coal business is seen as a major consolidation of metallurgical coal reserves and production, leading to the creation of a new company with strong market share.
Alpha is currently the biggest producer of metallurgical coal in the U.S., while Massey Energy has one of the largest metallurgical coal reserves in the country at about 1.3 billion tons. The merger will bring together Alpha's and Massey's highly complementary assets, which include more than 110 mines and combined coal reserves of approximately 5 billion tons. It will be the second-largest U.S. coal company by sales, with almost 14,000 employees.
Alpha Chief Executive Officer Kevin Crutchfield said, "Together we will be America's largest supplier of metallurgical coal for the world's steel industry and a highly diversified supplier of thermal coal to electric utilities in the US and overseas."
In the deal, Alpha said it has obtained $3.3 billion in committed financing from Morgan Stanley and Citi. It would also use existing cash balances to finance the cash consideration and to refinance certain existing Alpha and Massey debt.
The Massey board of director's had in November directed the company to engage in a formal review of strategic alternatives to boost shareholder value. Reports of the company exploring strategic alternatives, including the possible sale of itself, started emanating from mid-October onwards.
Massey recently made it to the headlines for all the wrong reasons. The company faced a severe crisis following tragic explosion at its Upper Big Branch Mine in southern West Virginia in April, which led to the death of twenty-nine miners. The blast is said to be the worst coal mine disaster in the U.S. in 40 years.
Massey also suffered a net loss of $41.4 million or $0.41 per share in its third quarter, hurt by increased production costs, lower production, and charges related to an explosion at one of its mines in April. Its second quarter results were also negatively impacted by a $129 million charge due to the anticipated legal costs related to the April explosion.
ANR closed Friday's regular trading session at $57.88, up $1.54 or 2.73 percent on a volume of 5.03 million shares.
MEE closed at $57.23, up $2.84 or 5.22 percent on a volume of 8.07 million shares.
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