According to a Friday report in the Wall Street Journal, Alpha Natural Resources – which purchased Foundation Coal in 2009 – has made a takeover offer for the Virginia-based company.
On Monday, a Reuters report mentioned two other potential buyers, Arch Coal and Consol Energy, causing speculation to increase along with share prices. Alpha, Arch and Consol’s prices had gained 7.6%, 4.1% and 4% respectively by midday Monday.
Brean Murray, Carret and Company analyst Jeremy Sussman told Reuters that “chatter in the space” on the possibilities of mergers and acquisitions were the primary cause.
"The reality is those two producers account for roughly a third of our domestic metallurgical production," Sussman said of Alpha and Massey.
Massey’s shares were reportedly up 11% last Friday but down 0.6% Monday.
Arch spokesperson Kim Link told ILN that the company did not respond to rumors, particularly those related to possible M&A activity. An Alpha official followed suit, telling ILN Tuesday afternoon the company did not comment on market rumors.
While Consol was also silent when approached by ILN, the producer told the WSJ in a recent interview that major coal companies with an interest in the central Appalachian region – where Massey’s operations are concentrated – would have to consider picking up the producer.
"If Massey is ever in a position where they're for sale, obviously the big coal companies are going to look at it," Consol chief executive Brett Harvey said.
"We're all natural acquirers. The real question is in any deal there's got to be a willing seller and it's not clear that they're there yet."
Amid the talk, Californian investor group Shareholders Foundation has launched an investigation on behalf of Massey’s investors, citing “possible breaches of fiduciary duties” in connection to takeover rumors or in the event of an official takeover.
“On November 6, 2010, the Wall Street Journal reported that Massey Energy is weighing a takeover offer from rival Alpha Natural Resources [and] … said that Massey's board retained investment bank Perella Weinberg for advice on the bid from Alpha,” the group noted.
“The investigation focuses on whether the Massey Energy board of directors will undertake an adequate and fair sales process to obtain fair consideration for all shareholders of Massey Energy and will breach their fiduciary duties to … shareholders by failing to adequately shop the company before entering into any transaction.
“In addition, the investigation seeks also to determine if any officer, director or any insiders violated any laws in connection with the takeover rumors.”
Shareholders Foundation went on to encourage common shareholders or those with additional information to contact the group.
Massey takes on more credit
Massey, which also has been silent on its strategic plans, thickened the M&A plot when it announced late Monday it had completed a $US200 million asset-based credit facility.
The amended and restated revolving agreement provides for available borrowings, including letters of credit, of up to $200 million dependent on eligible inventory levels and accounts receivable.
The producer can also elect at any time prior to maturity to increase the facility to $250 million subject to certain conditions. The maturity was extended in the amendment to May 2015.
Massey’s previous credit limit was $175 million, including letters of credit. Under the current facility the company has credit letters of $76.4 million issued with outstanding borrowings.
Investigations are ongoing into Massey’s Upper Big Branch operation in West Virginia, where 29 miners were killed in April. The producer noted earlier this year that increased enforcement by federal officials since the blast had been taking a chunk out of its productivity.
"Our operations have continued to struggle since April," Massey chairman Don Blankenship said in September.
Massey is currently the sixth-largest US coal operator. Its enterprise value as of Tuesday morning was $4.42 billion.