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Massey Said to Consider Takeover of International Coal

Don Blankenship, chairman and chief executive officer of Massey Energy Co. Photographer: Andrew Harrer/Bloomberg
Don Blankenship, chairman and chief executive officer of Massey Energy Co. Photographer: Andrew Harrer/Bloomberg

Massey Energy Co., owner of the Upper Big Branch mine where 29 people died in April, is studying options ranging from a sale of the company to a takeover of Wilbur Ross’s International Coal Group Inc., according to three people with knowledge of the matter.

Talks with International Coal, which first started this summer, began again following the Dec. 3 announcement that Massey Chief Executive Officer Don Blankenship will retire Dec. 31, said the people who asked not to be named because the talks are private.

The talks stalled in July and August after International Coal’s CEO Ben Hatfield expressed reservations about working again for Massey, the people said. Hatfield was employed for 23 years at Massey. He was executive vice president and chief operating officer there from June 1998 to the end of 2001.

Ross, 73, held an initial public offering for International Coal in December 2005. He is its second-largest shareholder with about 12.2 million shares. International Coal has a market value of $1.4 billion compared with Massey’s value of $5.2 billion.

International Coal controls 1.1 billion tons of coal reserves, some of which includes the steelmaking form. The company’s mines are in Illinois, Kentucky, West Virginia, Maryland and Virginia.

Renewed Interest

Blankenship’s departure has also renewed interest from ArcelorMittal SA, the world’s biggest steelmaker, said the people. Arcelor, which has hired JPMorgan Chase & Co. to advise on the Massey situation, previously assumed Blankenship would block any effort to sell the company, said the people.

International Coal rose 2 cents to $7 a share in New York Stock Exchange composite trading. Massey climbed 46 cents, or 0.9 percent, to $51.14.

Alpha Natural Resources Inc. has maintained its interest in acquiring Massey and is one of the options being considered by the board, the people said. At least two other coal-mining companies are interested in Massey, said the people.

Telephone and e-mail messages weren’t immediately returned by Massey. Ross Mazza, a spokesman for International Coal, declined to comment, as did Bill Steers, a spokesman for Arcelor. Ted Pile, a spokesman for Abingdon, Virginia-based Alpha, also declined to comment.

Strategic Review

With Blankenship about to depart, the Richmond, Virginia-based company’s board is running the strategic review, said the people. The board is expected to move slowly and may take months to conclude whether to sell the company, buy a smaller rival or maintain the status quo, said the people.

Blankenship, who’d been with Massey for 28 years, emerged as the face of the company in public disagreements with U.S. regulators following the mine accident, the worst in the U.S. in 40 years. He also had confrontations with the United Mine Workers of America. His departure may mean the company is under less pressure from shareholders and other outsiders to sell, said two of the people.

“Any company right now that’s considering potentially selling itself is going to want to make sure it’s a deliberate process, given that there’s a lot of merger-and-acquisition and M&A potential going on globally,” said Jeremy Sussman, an analyst at Brean Murray Carret & Co. in New York.

Advisers Retained

The company’s board said last month that a special committee will review strategic alternatives “to enhance shareholder value.” Perella Weinberg Partners LP was retained as financial adviser and Cravath Swaine & Moore LLP as legal adviser for the committee, the board said after its Nov. 21 meeting at the Greenbrier Resort in White Sulphur Springs, West Virginia. UBS AG is advising the company.

Many of the merger inquiries came earlier this year after the April 5 accident at the Upper Big Branch mine near Montcoal, West Virginia. The mishap was the worst U.S. coal mining disaster in 40 years.

The company has 2.8 billion tons of reserves, 1.3 billion of which are metallurgical coal, used to produce steel. Benchmark prices for that grade of coal have soared to $209 a metric ton for the three-month contract ending Dec. 31, 62 percent higher than a year earlier, driven by demand from China and India.

Scarcity of metallurgical coal reserves and the higher prices have spurred mergers and acquisitions within the coal industry this year, Sussman said.

Walter, Western

Walter Energy Inc., a southern Appalachia producer of steelmaking coal, agreed to buy Canada’s Western Coal Corp. this month for C$3.3 billion ($3.3 billion) to add reserves and boost production of the commodity.

Riversdale Mining Ltd., an Australian developer of coal mines in Africa, said Dec. 6 that it held talks with Rio Tinto Group on a potential A$3.5 billion ($3.46 billion) takeover proposal.

The average premium for coal-industry deals announced this year is 26 percent, according to data compiled by Bloomberg. Massey reported a quarterly loss of $41.4 million in the third quarter, citing reduced production and higher costs because of increased regulatory scrutiny.

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