Alpha bets

31 January 2011 By Christopher Swann

For a firm hobbled by the worst mining accident in decades, Massey has pulled off a coup with a $7.1 bln sale to its rival. The companies fit well together and should be strong in the redhot market for steelmaking coal. But the synergies don’t fully justify Alpha’s fat premium.

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Alpha Natural Resources said on Jan. 29 it agreed to a $7.1 billion deal to buy Massey Energy Co which was rocked by a deadly coal mining accident last year.

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 tonnes. The deal is expected to be completed in mid2011.

Massey shareholders will receive 1.025 Alpha shares 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 Jan. 28. In the months following the disaster, Massey shares lost more than half their value, hitting a low of $25.87 in July.

They have since bounced back to above preexplosion levels, helped by reports that the company would likely be acquired.

The merger with Alpha will create annual cost savings of $150 million by the second year of operations, the companies said. It is expected to add to Alpha's cash flow in the first full year.

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