Massey Energy’s shares rally on buyout pact

NEW YORK (MarketWatch) — Massey Energy Co. shares rallied Monday, surging after Alpha Natural Resources Inc. agreed to buy the metallurgical coal producer at a premium in a cash-and-stock deal valued at $8.5 billion, less than a year after an explosion at a Massey mine killed 29 workers.

Richmond, Va.-based Massey
 shares jumped 9.8% to end at $62.86, while Alpha Natural Resources
dropped 7% to $53.73. 

Analyst Jeremy Sussman of Brean Murray Carret & Co. named Alpha Natural as his top large-cap pick.

“While the $69 implied price for Massey is a few dollars higher than we would have expected … the deal is still 51 cents accretive in 2012, according to our estimates,” said Sussman in a note to clients.

“Investors are now likely to focus on the question, ‘Who is next?’ ” he said. Sussman called International Coal Group Inc.
“the best non-organic way for other coal producers to increase their met coal exposure at a reasonable price.”

Shares of International Coal Group rose nearly 3% to $9.13.

Alpha Natural said it will emerge with reserves of 5 billion tons — one of the world’s largest holdings of metallurgical coal, which is used for making steel.

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Terms call for Alpha Natural to pay 1.025 shares of common stock and $10 in cash for each share of Massey stock. Based on Friday’s closing price for Alpha, the deal values Massey Energy at $69.33 a share, a 21% premium over its $57.23 closing price on Jan. 28.

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Prices for metallurgical coal have risen this year after flooding of coal mines in Australia. Demand for steel is also on the rise as economic growth picks up steam in the developing world and elsewhere.

“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 U.S. and overseas,” Alpha Natural CEO Kevin Crutchfield said.

The transaction is expected to close in mid-2011, subject to approval by each company’s stockholders as well as regulatory clearances.

The deal comes less than a year after a blast at Massey Energy’s Upper Big Branch mine in West Virginia killed 29 miners — the worst U.S. mining disaster in 40 years.

In December, Don Blankenship retired from the company as chairman and chief executive. And on Jan. 5, Massey said fourth-quarter shipments fell short of expectations.

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