Courts Don't Resist Massey Buyout - Analyst Blog

The West Virginia Supreme Court and the Delaware Court of Chancery, yesterday, gave their judgment for the petition filed by a group of investors persuading the courts to issue an injunction barring shareholders from voting for the proposed merger between Massey Energy Company (MEE) and Alpha Natural Resources Inc. (ANR).

Three institutional investors of Massey had filed separately with the West Virginia and Delaware courts to halt the June 1 voting for the $7.1 billion merger stating that the deal could prevent them from suing the Massey board on allegations that the directors damaged the company by tolerating dangerous mining conditions. They contend that the company's management destroyed shareholder value by failing to maintain adequate safety standards, leading to the explosion last year that killed 29 people.

The investors accused that the Massey directors resorted to selling the company in order to escape from the liability from shareholder claims related to the Upper Big Branch mine accident.

The West Virginia Supreme Court, on May 31, ruled out the case stating that it did not have jurisdiction to the issue. It referred to the Delaware Court of Chancery, where a judge heard arguments last week over a request for an injunction brought by a different group of Massey investors.

Later the same day, the Delaware court issued a 79-page ruling stating that there was no reason for the shareholder voting to be called off. The court concluded that there was not enough evidence to support that the Alpha merger was undervalued, or that Massey directors agreed to the buyout solely to protect themselves from liability for the derivative claims.

Now that the court rulings have cleared the way for shareholders to vote in favor of the deal, the merger between Massey and Alpha is expected to close immediately following the June 1 voting.

The Alpha-Massey merger will make Abingdon, Virginia-based Alpha the third-largest producer of high-priced metallurgical coal in the world and the dominant U.S. producer of the specialty product used by steelmakers.

The merger will combine some of the world's largest and highest-quality metallurgical coal reserve bases, creating a company with about 5 billion tons of coal reserves and more than 110 mines in the U.S. Appalachian region and Wyoming's Powder River Basin.

Both Massey Energy and Alpha Natural Resources currently hold a Zacks #3 Rank (short-term Hold). We retain our long-term Neutral rating on the stocks.