The definitive agreement for Alpha to acquire all outstanding shares of Massey common stock was signed over the weekend, instantly making the combined company the largest central Appalachian producer as well as a global metallurgical coal supply giant.
Massey shareholders will receive 1.025 Alpha shares plus $10 cash for each share held, valuing Massey at $69.33 a share – a 21% premium on Massey’s price at the close of January 28 trading.
On completion of the deal, Alpha and Massey stockholders will own about 54% and 46% of the combined company respectively.
The merging of assets amounts to more than 110 mines and coal reserves of approximately 5 billion tons. The newly combined company will be the world’s third-largest met 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 when announcing the transaction Saturday.
“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.”
The merged entity gains an attractive financial profile with projected 2010 pro forma revenues of $6.9 billion as well as the highest free cashflow generation of any other pure-play US coal company. Its combined enterprise value now sits at about $15 billion.
Synergies are expected to exceed an annual run rate of $150 million within the second year of operations. Cashflow accretion in the first full year of combined operations is also anticipated.
"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 US and overseas,” Alpha chief executive officer Kevin Crutchfield said.
“The strategic and operational fit of our two companies is clear and compelling. Both companies' stockholders will gain an opportunity to participate in the upside potential of a global industry leader with a robust production portfolio, attractive growth profile and substantial reserve base.”
Newly appointed Massey president and CEO Baxter Phillips said the transaction was a “tremendous opportunity” for the two companies to create a new industry leader.
“After a careful review of a wide range of strategic opportunities, our board unanimously determined that this is the right course for our company,” he said.
“The merger with Alpha offers Massey stockholders an immediate and substantial premium, as well as the opportunity to participate in the significant value creation opportunities our combination presents.”
Both the Alpha and Massey boards have approved the definitive merger agreement’s terms and have recommended stockholder approval.
The transaction is expected to close in mid-2011, pending those approvals as well as customary regulatory approvals and closing conditions.
According to Bloomberg, 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.
Phillips, meanwhile, will stay with Alpha in an advisory capacity.
