As stated, everything looks great on the surface of this deal, what's the toxic factor? Everyone knows that Massey has a dismal safety record; in fact, the company has the worst record in the coal industry. Despite the company's obvious success in the coal mining business, it has been plagued with a series troubling occurrences. The most recent happened on April 5, 2010, in an explosion killing 29 miners in Massey's Upper Big Branch Mine. This appropriately named tragedy, The Upper Big Branch Mine Disaster, was the cumulating of an astounding 1,100 Federal safety violations over the previous three years. Disturbingly, sections of the Upper Big Branch Mine were ordered closed 60 times in the year previous to the catastrophe. Investigations are ongoing into the exact cause of the explosion. In addition, as you may expect, a criminal negligence probe is also ongoing. This worst coal mining calamity in more than 40 years is far from the only troubling situation occurring at Massey. A far from perfect safety record resulting in multiple deaths over the years combined with an abysmal environmental history plague the company.
Alpha believes it will be able to clean up this disturbing record and make Massey's mines safe. This is very likely, but I believe Alpha is discounting the legal concept of successor liability in the transaction. This means that Alpha now becomes responsible for Massey's legal woes. Of course, Alpha believes they have quantified these liabilities, but with all things court related, one never knows for sure what will happen until the gavel falls. Successor liability creates a large overhang of unknown factors. Investors must consider these unknowns prior to investing in Alpha.