The group’s legal representative, Maryland-based Brower Piven, said Monday that the deal was “the result of a flawed and unfair process”, and that the proposed price of 1.025 Alpha shares plus $US10 cash for each Massey share – or $69.33 – was unfair.
The offer is a 21% premium on Massey’s closing share price the day before the transaction was announced.
“Members of Massey's board of directors, acting out of their own self-interest, negotiated and entered into an agreement with Alpha that is both procedurally and substantively grossly unfair to Massey's shareholders,” the law firm said of the complaint filed Monday in the US District Court for the Eastern District of Virginia.
“Procedurally … the terms of the proposed acquisition virtually ensure that [it] will be consummated because of onerous deal protection devices, such as a full ‘no shop’ provision and a $251 million termination fee.”
Brower Piven also noted the deal was “substantively inadequate” because it did not consider the strong past performance of Massey or its growth potential relative to Alpha’s stock performance, which it called “relatively flat”
The group named both Massey and Alpha as defendants because both “allegedly aided and abetted the board of directors' breaches of fiduciary duty”
Those seeking to be part of the suit have been requested to contact the firm.
Neither producer had released public comment on the legal turn by Tuesday afternoon.
Alpha announced the takeover in late January, following months of rumors that Massey would be sold. Worth $8.5 billion, the deal is set to create a domestic and global producing behemoth.
The newly combined company will have more than 110 mines and coal reserves of about 5 billion tons. It will also be the world’s third-largest metallurgical coal producer behind BHP Billiton-Mitsubishi Alliance and Teck Resources.
“Alpha and Massey believe the new entity will be well positioned to capitalize on strong global demand trends for coal, including the metallurgical coal used in the steel manufacturing process,” Alpha said at the time of the announcement.
“Further, the combination is expected to permit Alpha and Massey to benefit from geographical and asset diversification, including operations and reserves in central and northern Appalachia, the Illinois Basin and the Powder River Basin in Wyoming.”
Both companies’ boards have approved the definitive merger agreement’s terms and recommended stockholder approval, but such approval is still pending.
The transaction is expected to close in mid-2011, pending those approvals as well as customary regulatory approvals and closing conditions.
According to Bloomberg, Alpha chief executive Kevin Crutchfield will remain CEO of the combined company and Michael Quillen will maintain his chairman role. Kurt Kost will continue to serve as Alpha president.
Recently appointed Massey CEO Baxter Phillips, meanwhile, will stay with Alpha in an advisory capacity.
