Market Overview

Alpha Natural, Massey Deal Said To Be Imminent

In case you're wondering why shares of Alpha Natural Resources (NYSE: ANR), the third-largest U.S. coal producer, and Massey Energy (NYSE: MEE), the largest coal producer in Central Appalachia, were higher on Friday despite the facts that material stocks were down and the Market Vectors Coal ETF (NYSE: KOL) slipped almost 2%, here's the answer: Alpha Natural is expected to announced a $7 billion offer for Massey any day now.

The story was originally reported by the Wall Street Journal, but Benzinga's own ETF Professor surmised on Friday before the Journal piece broke that KOL would be an ETF to watch next week because Massey could announce a decision on its fate. Late last year, the company said it was exploring strategic alternatives, which included a possible sale or an acquisition of its own.

An offer of $7 billion would value Massey at $68-$69 a share, well above the low $60 range some analysts had been forecasting. Massey shareholders will receive about 1.025 Alpha shares, plus $10 in cash for each share held, representing an almost 20 percent premium from Massey's closing share price yesterday, according to Bloomberg News.

Virginia-based Alpha Natural, which had been widely viewed as the leading contender for its in-state rival, will use the acquisition to bolster its dominance of the U.S. metallurgical coal market. Alpha Natural is already the biggest U.S. metallurgical coal producer, but soaring demand for the coal used to make steel by China and India has sent prices soaring, making the acquisition of Massey all the more appealing. Nearly half of Massey's 2.8 billion tons of reserves are metallurgical coal.

Prices for steelmaking coal may surge 78 percent to a record $400 a metric ton for the three-month contract starting April 1, amid flooding in Queensland, Australia, Bloomberg reported, citing Bank of America. Arch Coal (NYSE: ACI), the second-largest U.S. coal producer, was said to be the runner-up for Massey.

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