Massey Energy Judge Tells Investor Lawyers He May Not Block Sale to Alpha

A Delaware judge reserved ruling on a request by Massey Energy Co. investors to block the coal producer’s $7 billion takeover by Alpha Natural Resources Inc. (ANR) before a scheduled June 1 shareholder vote on the deal.

At a hearing today in Delaware Chancery Court in Wilmington, Judge Leo Strine Jr. told lawyers for the investors that he wasn’t likely to grant their request to bar the buyout until they can pursue mismanagement claims against directors over the April 2010 accident that killed 29 miners.

“I actually have to apply the law,” Strine said during the hearing. “I can’t grant an affirmative injunction or affirmative relief except on undisputed facts or after a trial.”

Massey, the largest coal producer in central Appalachia, was sued in Delaware Chancery Court last year by the New Jersey Building Laborers Pension Fund alleging directors failed to adequately address poor safety conditions that killed workers at the Upper Big Branch mine in West Virginia.

The pension fund is seeking to hold Massey’s board liable for the Richmond, Virginia-based company racking up more than $25 million in assessed violations by the U.S. Mine Safety and Health Administration from the disaster. The fund’s case was filed as a so-called derivative suit, which would return any recovery to the company. Individual shareholders wouldn’t receive any direct payments as a result of the complaint.

No Incentive

Stuart Grant, an attorney for the fund, urged Strine to bar the deal for at least 15 days, giving shareholders time to assess the value of legal claims the buyout would transfer to Alpha. Those claims would be lost, as Alpha would have no incentive to pursue them, Grant said.

“Once again corporate boards who do wrongdoing, they walk, and that’s what’s absolutely going to happen,” Grant said.

Kevin Abrams, an attorney for Massey, countered that it wasn’t necessary for Strine to rule on Grant’s suggestion that the claims be transferred to a litigation trust.

“There is no irreparable harm poised by the consummation of the merger,” Abrams said. “There are multiple avenues for the continued prosecution or recovery under the derivative claims.”

Litigation Trust

The deal represents a more than 20 percent premium over the company’s trading price before the mining accident, Abrams said. Company directors would have jeopardized that price had they haggled with Alpha about the claims or a litigation trust.

“It would have lowered the price and exacerbated the problem,” Abrams said. “Alpha would have realized that transferring to a litigation trust dissipates value for Alpha and that would have hurt stockholders.”

Grant said the deal gives Massey directors and former Chief Executive Officer Don Blankenship a “get-out-of-jail-free card.”

Blankenship, who resigned in December after 30 years at Massey, stands to get as much as $45 million in severance, as well as medical coverage, according to court papers. Investors contend that represented corporate waste.

In court papers unsealed in the case yesterday, lawyers for the pension fund said Blankenship believed there was a U.S. conspiracy to destroy the company and battled with mine-safety regulators over conditions at the company’s facilities.

‘Run Coal’

The pension fund’s lawyers cited a 2005 memo Blankenship wrote to Massey mining managers telling them to disregard instructions to improve safety in the mines or orders “to do anything other than run coal.”

After the Upper Big Branch accident, Massey directors sought to protect themselves from personal liability by arranging for Blankenship’s retirement and elevating Baxter Phillips to the CEO role, according to the unsealed court papers.

Massey officials denied last week that directors forced Blankenship to step down. The board’s independent directors “did not make a recommendation to the board to remove Mr. Blankenship or request his resignation,” officials said in a May 19 filing with the U.S. Securities and Exchange Commission.

Massey rose $1.14, or 1.8 percent, to $63.91 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have risen 19 percent this year.

The consolidated case is In Re Massey Energy Co. (MEE) Derivative and Class Action Litigation, CA5430, Delaware Chancery Court (Wilmington)

To contact the reporters on this story: Sophia Pearson in Wilmington at spearson3@bloomberg.net; Phil Milford in Wilmington at pmilford@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.To

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