Massey Energy Directors Divided on Strategy (MEE, ANR, MT, ACI, CNX, KOL)

The board of directors of Massey Energy Co. (NYSE: MEE) are meeting this week to decide on the company’s next step following a report in mid-October that it was “exploring strategic alternatives, including a possible sale.” The company’s Upper Big Branch mine suffered an explosion in April that killed 29 miners.  Since October, a number of possible suitors have been mentioned. The first is Alpha Natural Resources Inc. (NYSE: ANR), which is expected to present a bid to Massey’s board, according to The Wall Street Journal. Luxembourg-based ArcelorMittal SA (NYSE: MT) has also reportedly expressed interest in Massey,  [https://a673b.bigscoots-temp.com/2010/10/19/taking-stock-of-masseys-options-mee-btu-clf/] and Arch Coal Inc. (NYSE: ACI) and Consol Energy Inc. (NYSE: CNX) may also be interested.

Even before the tragic explosion, Massey’s share price had fallen about 20% from a 52-week high of $54.80. The intense scrutiny of the miner after the blast has added to its share price woes, which set a new 52-week low of $25.85 in early July. Shares have since risen back to nearly $50/share, with most of that coming since news of the company’s decision to review its strategic options.

Massey’s CEO Don Blankenship does not want to sell the company, according to the WSJ. Apparently he does not believe that shareholders would get a good price at present because of the increased federal regulatory reviews and the fallout from the April explosion.  It is also possible that Massey wouldn’t accept any price, given that he is very likely to fired if the company is sold. The WSJ quotes a source as saying that Blankenship may be outvoted, though, by as much as nine to one.

The board has to decide whether Blankenship’s is the hand it wants on the tiller as the company tries to steer through its current troubles. He has been the company’s CEO for 20 years and has had a hand in appointing the other nine directors. One director is president of Massey and another is a former Massey executive — the rest are outsiders. Two directors were appointed in August of this year. Massey pays its directors generously, with some earning more than $200,000 in fees and stock awards.

Aside from an outright acquisition, Massey could seek a takeover of its own where the acquired company’s management would run the combined company. Under such a scenario, Blankenship would go. Massey could also choose to remain independent, with or without Blankenship at its head.

The least the board could do this week is establish a formal committee to explore a possible sale. If they do that, it surely means that Blankenship has lost. If the board continues with this informal process, it most likely will mean that Blankenship has dodged a bullet for now.

Massey’s shares are up about 0.6% at about noon today, while Alpha shares are down by the same amount. ArcelorMittal shares are down nearly -4% on worries of a revenue miss and on the issuance of 1 billion euros of 4.625% notes due in 2017. Arch Coal and Consol are both down about -1.5%, as is the Market Vectors Coal ETF (NYSE: KOL).

Paul Ausick