CHICAGO/NEW YORK – Alpha Natural Resources said on Saturday it agreed to a $7.1 billion deal to buy Massey Energy Co, which was rocked by a deadly coal mining accident last year.
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. After the acquisition, Alpha will be the largest supplier of metallurgical coal, which is used in steel making, in the United States.
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, 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 one of its West Virginia mines in April.
The company has been under scrutiny since the accident, which was the deadliest U.S. coal mining disaster in 40 years.
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.
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.
The likelihood that Massey would be acquired increased with the departure of Chief Executive Don Blankenship at the end of last year. Blankenship had been seen as opposed to selling the company and analysts in December said his departure removed the largest impediment to a deal with Alpha.
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. It is expected to add to Alpha's cash flow in the first full year.
Morgan Stanley was lead adviser for Alpha on the deal. Citigroup also advised the company. Perella Weinberg and UBS advised Massey on the sale.
Alpha obtained $3.3 billion in committed financing from Morgan Stanley and Citi, which it plans to use, along with its existing cash balance, to pay for the cash portion of the deal as well as refinance some debt of both companies. The cash portion of the purchase accounts for roughly $1 billion of the deal value.
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.