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Massey Courts Suitors for Acquisition

|Includes:ARCH, CNX, MT, WLT
Riding the coattails of the failed Dynegy – Blackstone deal, Massey Energy Co. (MEE) announced last week that at the bequest of its Board of Directors will engage in a formal review of strategic alternatives to “enhance shareholder value.” This is code for courting suitors. The company has been approached by potential acquirers including Alpha Natural Resources Inc. (ANR), ArcelorMittal SA (MT), Arch Coal Inc. (ACI), and Consol Energy Inc. (CNX). Chief Executive Officer Don Blankenship has expressed reservations about selling the firm but the opinion of the Board was to the contrary. The Board’s Strategic Alternatives Review Committee will advise and report to the Board on their analysis of possible sale options. Perella Weinberg Partners LP was retained as financial adviser and Cravath Swaine & Moore LLP as legal adviser for the committee.  Perella Weinberg has advised the Board that Alpha Natural Resources Inc., whose earlier bid of $55 per share was deemed too low by the Board, made the most sense as a buyer. Press releases by Massey suggest the company had reengaged in their consideration of acquisition offers as early as 19 October. The company has not set a definitive timetable for completion of its evaluation and there can be no assurance that this process will lead to the approval or completion of any transaction.
Massey, whose accident at the Upper Big Branch mine near Montcoal, WV killed 29 miners this past spring, is the largest coal producer in Central Appalachia and owns 2.8 billion tons of reserves of which 1.3 billion of which are metallurgical coal used to produce steel. Comparable deals in this industrial space include Walter Energy Inc. (WLT), a southern Appalachia coking coal producer, made an offer to purchase Western Coal Corporation (WTN), a Canadian mining company, on November 18th for C$3.3 billion ($3.2 billion) to increase access to the commodity, representing a 59 percent premium to Western Coal’s 20-day average price of C$7.23 as of Nov. 18 on the Toronto Stock Exchange.  Coal India Ltd., the largest coal producer in the world who went IPO on 18 October and recently uplisted to the NYSE (COALINDIA), is considering a Massey mine for its first asset purchase in the U.S., to help the state-run company meet demand from power stations and steel mills. Demand for metallurgical coal is booming worldwide driven by growth in China and India. 
Massey’s stock has largely recovered from a severe depression in the wake of the 5 April catastrophe. However, the merger bids are undoubtedly being considered in the context of the company’s ongoing public relations troubles. I was reminded of the firm’s faltering image as I drove through West Virgnia on my return to Pittsburgh from visiting family in Virginia for the Thanksgiving holiday when I saw this billboard:


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