Alpha Natural Agrees to Buy Massey Energy

for $7.1 Billion in Cash, Stock

By Mario Parker and Zachary R. Mider - Jan 30, 2011 8:58 AM GMT+0700

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Alpha Natural Resources Inc., the third-biggest U.S. coal producer, agreed to buy Massey
Energy Co. for about $7.1 billion in cash and stock, gaining the largest coal company in the U.S.
Central Appalachian region.

Massey shareholders will receive 1.025 Alpha Natural shares plus $10 cash for each share held,
the companies said in a statement yesterday. The bid values Massey at $69.33 a share, 21 percent
more than Masseys price at the close of trading Jan. 28. Massey has $1.63 billion in debt,
according to Bloomberg data.

Enlarge image

Alpha Natural Agrees to Buy Massey Energy

Aliza Marcus/Bloomberg

An earth mover at a Foundation Coal Holdings mine, owned by Alpha Natural Resources, near
Gillette, Wyoming.

An earth mover at a Foundation Coal Holdings mine, owned by Alpha Natural Resources, near
Gillette, Wyoming. Photographer: Aliza Marcus/Bloomberg

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Alpha Natural Agrees to Buy Massey Energy

Thurston Howes/Bloomberg

Massey Energy headquarters in Richmond, Virginia.

Massey Energy headquarters in Richmond, Virginia. Photographer: Thurston Howes/Bloomberg

Alpha Natural Resources Chief Executive Officer Kevin Crutchfield. Source: Alpha Natural via
Bloomberg

The combination will give the new company more than 110 mines and coal reserves of about 5
billion tons, and creates the worlds third-largest metallurgical coal producer behind BHP
Billiton-Mitsubishi Alliance, known as BMA, and Teck Resources Ltd. It will be the second-
largest U.S. coal company by sales, with almost 14,000 employees.
Weve always thought the combination between our two companies was strategic,
transformational and compelling, Alpha Natural Chief Executive Officer Kevin Crutchfield said
in a telephone interview yesterday. We went into the process with an eye toward winning, and,
at the end of the day we did emerge victorious and were absolutely delighted that we did.

Alpha Natural will own 54 percent of the company, and Richmond, Virginia-based Massey will
own the remaining 46 percent, according to the statement. Both companies boards have
approved the transaction, they said.

Alpha and Arch

Alpha Natural won Massey over a competing proposal from St. Louis-based Arch Coal Inc.,
according to two people with knowledge of the talks.

Alpha Natural, the largest U.S. metallurgical coal producer, has operations in Virginia, West
Virginia, Kentucky, Pennsylvania and in Wyomings Powder River Basin. The Abingdon,
Virginia-based company bought Foundation Coal Holdings Inc. for $2 billion in July 2009 to
gain access to the low-cost thermal coal reserves in Wyoming, and controls about 2.3 billion tons
of reserves.

Massey has about 2.8 billion tons of reserves, 1.3 billion of which is of the metallurgical or
coking coal used to produce steel. 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, which has disrupted supply, Bank of America Merrill Lynch said in a Jan. 25 report.

Mine Disaster

The company owns the Upper Big Branch mine near Montcoal, West Virginia, where 29 people
died in an April 5 explosion, the worst U.S. coal mining disaster in 40 years. Massey has posted
consecutive losses since the accident, citing associated costs and increased regulatory scrutiny.

Crutchfield said he will remain CEO of the combined company, while Alpha Naturals Michael
Quillen keeps his job as chairman and Kurt Kost continues in his role as president of Alpha.

Massey Chief Executive Baxter Phillips will remain with Alpha as an adviser, Crutchfield said.

Baxter will be staying on with us in an advisory-type capacity, Crutchfield said. He will play
a very key role in the integration process as well as other key business matters.

Alpha executives have coveted Massey since at least 2007, when the companies discussed a
stock merger, according to the two people familiar with the talks. The previous year, Massey had
announced it was exploring alternatives after activist hedge fund Third Point LLC, run by Daniel
Loeb, won two board seats and pressed for a sale.

Blankenships Opposition
Masseys chief executive officer at the time, Don Blankenship, opposed the Alpha combination,
the people said, and ultimately succeeded in keeping the company independent. Loeb and his
colleague quit, chiding the board for failing to follow through with an attractive business
combination with a competitor, according to a regulatory filing.

Alpha Natural went on to agree to a sale to iron ore producer Cleveland-Cliffs Inc. in 2008 that
fell through and then it bought Foundation Coal.

The company approached Massey again last year, a few months after the Upper Big Branch
explosion, and followed up with an unsolicited, written takeover proposal, the people said.
Masseys board entered into talks with Alpha and other potential acquirers.

Weve had discussions off and on for several years, but they reached a point of earnestness, call
it, the last few months, Crutchfield said yesterday.

Coal Premiums

The average premium for coal-industry deals announced in 2010 was 26 percent, according to
data compiled by Bloomberg. Walter Energy Inc., a southern Appalachia producer of
steelmaking coal, agreed to buy Canadas Western Coal Corp. last month for C$3.3 billion ($3.3
billion) to add reserves and boost production.

Massey has about 7,000 employees and has been operating for more than 94 years and started
with the Massey family selling coal door-to-door via horse-drawn wagon. St. Joe Minerals
acquired a majority interest in 1974. Six years later, St. Joe and Royal Dutch Shell Plc formed
Massey Coal Partnership, according to the companys website.

Fluor Corp. bought St. Joe Minerals, reorganizing Massey into a subsidiary. Massey completed a
reverse spinoff from Fluor in 2000.

Former CEO

Phillips, who has been with the company for 30 years, became Masseys chief executive officer
on Dec. 31 after Blankenship retired. Blankenship, who emerged as the face of the company in
public disagreements with U.S. regulators following the Montcoal accident, had been with
Massey for 28 years.

Blankenship, who began his career with the company as an office manager in 1982, had
expressed reservations about the companys potential sale. When he became president in 1990
Massey had about 700 million tons of coal, he has said. Under his management it mined 763
million tons of coal and he boosted its reserves to the 2.8 billion it currently holds.

Massey rose $2.84, or 5.2 percent, to $57.23 in New York Stock Exchange composite trading
Jan. 28. The shares had fallen 35 percent since the fatal blast before surging on an Oct. 18 Wall
Street Journal report that it was weighing a sale.
Alpha said that it received commitments for $3.3 billion in financing from Morgan Stanley and
Citigroup Inc. and that it will use some of it to refinance both companies debt.

Morgan Stanley is the lead financial adviser for Alpha, in addition to Citi and Cleary Gottlieb
Steen & Hamilton LLP is providing legal counsel.

Massey is advised by Perella Weinberg Partners LP and UBS Securities LLC. Cravath, Swaine
& Moore LLP and Troutman Sanders LLP are Masseys legal counsel.

EPA Greenhouse-Gas Rules Upheld by U.S.

Appeals Court
By Tom Schoenberg - Jun 27, 2012 5:23 AM GMT+0700

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The U.S. Environmental Protection Agency was unambiguously correct in moving to set limits
on industrial and automotive emissions of greenhouse gases including carbon dioxide, a federal
appeals court said.

A three-judge panel of the U.S. Court of Appeals in Washington ruled today that the EPA
properly concluded that greenhouse gases are pollutants that endanger human health and that
opponents dont have the legal right to challenge rules determining when states and industries
must comply with regulations curtailing emissions of them.

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Industrial Emission Limits

fotog/Getty Images

The Environmental Protection Agency upheld the limits on factory emissions.

The Environmental Protection Agency upheld the limits on factory emissions. Photographer:
fotog/Getty Images

Todays ruling is a setback for businesses facing damaging regulations from the EPA, Jay
Timmons, president of the National Association of Manufacturers, said in a statement. The
EPAs decision to move forward with these regulations is one of the most costly, complex and
burdensome regulations facing manufacturers. These regulations will harm their ability to hire,
invest and grow.

Companies such as Massey Energy Co., business groups including the U.S. Chamber of
Commerce and states led by Texas and Virginia sought to stop the agency through more than 60
lawsuits. Some argued that the EPA relied on biased data from outside scientists. Automakers
intervened in the lawsuit in support of the new standards. Through the Alliance of Automobile
Manufacturers, the carmakers supported a national program, saying they wanted to avoid
conflicting standards from state and federal regulators.
Supreme Court

Opponents said theyre considering whether to ask the full appeals court to hear the case or to
petition the U.S. Supreme Court, according to Shannon Goessling, executive director and chief
legal counsel at the Southeastern Legal Foundation, an Atlanta-based organization that sued the
EPA on behalf of companies and lawmakers.

This case is equaled only to the Obamacare case in terms of its effect on the citizens, the
industries and the economy in the U.S., Goessling said in a phone interview.

In todays ruling, the judges said the EPA had substantial record evidence that greenhouse
gases probably caused the climate to warm over the past several decades.

In the end, petitioners are asking us to re-weigh the scientific evidence before EPA and reach
our own conclusion, the panel wrote in its 82-page opinion. This is not our role.

Endangerment Finding

In 2007, the U.S. Supreme Court ruled that the EPA had authority to regulate greenhouse gases
such as carbon dioxide and methane under the Clean Air Act if the agency declared them a
public danger. The EPA issued an endangerment finding in December 2009, clearing the way for
regulation of emissions from power plants, factories and other sources linked to global climate
change.

Throughout todays ruling, the judges refer to the Supreme Court decision in rejecting the
challengers arguments that the EPA rules, which have been in effect since January 2011, are
unlawful.

EPA Administrator Lisa Jackson called the ruling a strong validation of the agencys approach
in responding to the Supreme Court decision.

I am pleased that the U.S. Court of Appeals for the D.C. Circuit found that EPA followed both
the science and the law in taking common-sense, reasonable actions to address the very real
threat of climate change by limiting greenhouse gas pollution from the largest sources, Jackson
said in an e-mailed statement.

Huge Victory

This is a huge victory for our childrens future, David Doniger, senior attorney for the Climate
and Clean Air Program at the Natural Resources Defense Council, said in a statement. These
rulings clear the way for EPA to keep moving forward under the Clean Air Act to limit carbon
pollution from motor vehicles, new power plants and other big industrial sources.

The lawsuits were consolidated, with arguments divided into three parts and held over two days
in February. The parties argued over the agency finding that greenhouse gases are pollutants that
endanger human health. The judges also heard arguments against a 2010 rule on motor-vehicle
emissions that opponents said improperly sets standards for stationary sources, such as steel mills
and power plants.

The court considered challenges to the EPAs tailoring rule, which limits the businesses covered
by carbon regulation and phases in controls. The agency plans to phase in industrial polluters
covered by the carbon rules through 2016.

The EPA argued in court filings that the tailoring rule is acceptable under the Clean Air Act and
necessary to keep states from being overrun with permit requests.

Carbon Permits

The regulations require only the biggest emitters, such as power plants and oil refiners, to obtain
state carbon permits before building or upgrading facilities. State officials will determine
pollution controls case by case.

Virginia and Texas said the endangerment finding should be rejected because the EPA refused to
reconsider its decision after learning that some of the data it relied on may have been
manipulated, referring to findings by the United Nations Intergovernmental Panel on Climate
Change.

This decision doesnt change the fact that people arent building new plants in the U.S., said
Jeffrey Holmstead, a lawyer at Bracewell & Giuliani LLP in Washington who wasnt involved in
the case.

Holmstead, who was an EPA official during the George W. Bush administration, said Congress
will ultimately step in. How soon that happens will depend on the November elections, he said.

The ruling delivers a devastating blow to the economy and consumers said Representative
Fred Upton, chairman of the House Energy and Commerce Committee.

Red Tape

After enduring 40 consecutive months of higher than 8 percent unemployment, we cannot

afford the EPAs continued expansion of red tape that is slowing economic growth and
threatening to entangle millions of small businesses, the Michigan Republican said in a
statement.

EPAs rules will impose billions of dollars in compliance and delay costs and represent an
unprecedented expansion of EPA authority that has the potential to affect virtually every sector
of the economy and touch every household, Upton said.