Alpha Natural Resources Inc. CEO Kevin Crutchfield said Massey Energy Co. has been at the top of Alpha's list of companies to acquire for a while because the combination would create a global leader in metallurgical coal reserves, production and sales. He said the 21% premium Alpha had agreed to pay for Richmond, Va., based Massey is well worth it.
With the announcement Saturday that Alpha reached an agreement to acquire Massey in a cash and stock deal valued at $7.1 billion, Alpha is now poised to become the world's third-biggest producer of coal used by steelmakers just when global demand for the resource is growing and supplies are increasingly scarce. The combined company will have more than 110 miles and 5 billion tons of coal reserves, including reserves of high quality metallurgical coal used in steelmaking.
"We've always thought the combination between Massey and Alpha could be very compelling," Mr. Crutchfield said in an interview Saturday evening. "We were fundamentally convinced that the world was going to remain fundamentally under-supplied for metallurgical coal for the foreseeable future."
Alpha, based in Abingdon, Va., announced that it expects to gain $150 million in synergies within the second year of operations of the combined company. Mr. Crutchfield said that is likely a conservative estimate, as he ran through a list of potential synergies: the combined company will produce a broader range of coal qualities that can be blended into new products to market to steel makers. He also expects savings on production and transportation. In the past, Alpha often trucked its coal past Massey coal preparation plants in Central Appalachia to get to its own facilities.
Mr. Crutchfield said Alpha will also be better able to take advantage of long-term export opportunities for U.S. coal producers as demand in China and India and short-term supply disruptions like recent massive flooding in Australia and other countries. He said the combined company will have 25 million tons of port capacity. He said port capacity wasn't a big deal for coal producers until recently. "Now, it's a hot commodity."
Mike Quillen, Alpha's chairman, and Kurt Kost, Alpha's president, will fill those posts at the combined company, said Mr. Crutchfield, who will be CEO. He said he expects that Massey's current CEO, Baxter Phillips, who has extensive knowledge of the industry and Massey, will have some kind of advisory role. "I can't imagine going at this without Baxter," he said.
Mr. Phillips said in a statement Saturday, "This transaction represents a tremendous opportunity for Massey to partner with our Central Appalachian neighbor, Alpha, to create a new industry leader."
Mr. Crutchfield said that Massey's longtime CEO Don Blankenship, who opposed a sale and retired at the end of the year, will not be part of the new company. "We certainly wish him the best of luck in his ongoing endeavors," Mr. Crutchfield said.
Some coal industry watchers have wondered whether a Massey-Alpha linkup could run into anti-trust issues. But Mr. Crutchfield said he does not expect any headwinds. "Our sense is … that the customers are going to be pretty receptive to this," he said. "We're very confident that we'll clear the (Federal Trade Commission)."
Rather than shut mines or sell off assets, Alpha is more likely to ramp up production to take advantage of the current hot international market for metallurgical coal. It will be looking to optimize equipment and personnel to increase margins, but Mr. Crutchfield said, "There's the possibility that we actually stoke production, which is our thinking now based on what we're seeing in the marketplace."
It's not clear how Alpha will approach some of the problems that plagued Massey since the accident last April at its Upper Big Branch mine in Montcoal, W.Va., that killed 29 miners -- from litigation to contentious relations with federal mine regulators. The families of two miners have sued Massey for wrongful death under state law, and federal and state investigations, including a criminal probe into the accident, are ongoing.
Mr. Crutchfield said he believes the combined company will eventually enjoy the same good relationship Alpha has with regulators currently, and he hopes that some issues related to the disaster are resolved prior to when the acquisition closes. "The industry and family, everybody, needs closure on it," he said.
Mr. Crutchfield noted that during Alpha's past effort to acquire Massey several years ago "the stars just didn't align." But he added, "Sometimes things that make sense take some time to happen and we're thrilled that this one finally got to the finish line."
Write to Kris Maher at kris.maher@wsj.com