Bloomberg News

Massey Investors Can’t Block Alpha Vote, Delaware Judge Rules

June 01, 2011

June 1 (Bloomberg) -- Massey Energy Co. investors lost two court challenges to Alpha Natural Resources Inc.’s buyout of the coal producer for more than $7 billion, clearing the way for today’s shareholder vote on the acquisition.

Delaware Chancery Court Judge Leo Strine yesterday rejected a request by some Massey shareholders to put off an approval vote on the deal for 15 days so investors can more thoroughly study Alpha’s cash-and-stock offer. The West Virginia Supreme Court of Appeals rejected a similar request.

“In my judgment, issuance of an injunction threatens more harm to Massey stockholders than its potential benefits to them,” Strine said in a 79-page ruling.

Massey, the largest coal producer in central Appalachia, was sued by investors in West Virginia and Delaware over claims the company’s directors failed to push managers to improve safety conditions after 29 workers died in an April 2010 explosion at the Upper Big Branch mine in West Virginia.

The shareholders seek to hold Massey’s board liable for more than $25 million in sanctions related to the blast that were assessed on the Richmond, Virginia-based company by the U.S. Mine Safety and Health Administration.

Stuart Grant, a lawyer for the New Jersey pension fund that sued in Delaware, said he was disappointed with Strine’s ruling.

‘Simple Way Out’

“The message sent is that if you violate the law as a director, the simple way out is to sell the company,” Grant said in an e-mailed statement.

Micah Ragland, a Massey spokesman, and Rick Nida, an Alpha spokesman, didn’t respond to phone calls seeking comment.

Abingdon, Virginia-based Alpha is offering $10 a share in cash plus stock for Massey. Lawyers for the pension fund contend Alpha should pay as much as $1.5 billion more for the coal producer.

In court papers unsealed in the Delaware case last week, lawyers for the New Jersey pension fund said Massey’s top executives believed there was a U.S. conspiracy to destroy the company and battled with mine-safety regulators for years over conditions at the company’s facilities.

‘Profoundly Reckless Manner’

A state investigator concluded May 19 Massey officials were responsible for the Upper Big Branch explosion. The firm “operated its mines in a profoundly reckless manner,” according to the report issued by J. Davitt McAteer, a former federal mine administrator named by the governor to investigate the blast.

The mine, about 46 miles (76 kilometers) south of Charleston, West Virginia, is run by Massey’s Performance Coal Co. unit. The nonunion mine opened in October 1994.

Massey officials said May 10 they set aside $78 million to deal with litigation over the Upper Big Branch incident and have settled at least five wrongful-death suits.

Dissident Massey investors allege the company’s board was asleep at the switch as former Chief Executive Officer Don Blankenship and other executives were allowed to systematically ignore safety regulations to increase coal production.

Blankenship, an almost 30-year veteran of the company, stepped down in December. He’s slated to receive $45 million in connection with his departure. Investors contend that amounts to a waste of corporate assets.

California Pension Fund

In the West Virginia case, filed by a California pension fund, the state’s highest court said yesterday it didn’t have jurisdiction to issue an order blocking today’s vote on the Massey buyout.

Strine, based in Wilmington, Delaware, said he wouldn’t stop the vote because Massey stockholders “are well positioned to determine for themselves whether to accept” Alpha’s offer.

Delaying the deal also would keep Massey “under management the plaintiffs themselves do not consider sound,” the judge noted.

In the decision, Strine noted that the pension fund’s lawyers offered evidence that Massey officials put profit over mine workers’ safety and repeatedly flouted government mining regulations.

Massey executives believed they “knew better than those charged with enforcing the law and often argued with the law itself,” the judge said.

The evidence also showed that the company’s board was “aware of a troubling continuing pattern of non-compliance in fact and of a managerial attitude suggestive of a desire to fight with and hide evidence from the company’s regulators,” Strine added.

The consolidated case is In Re Massey Energy Co. Derivative and Class Action Litigation, CA5430, Delaware Chancery Court (Wilmington)

--With assistance from Sophia Pearson in Philadelphia and Steven Church and Dawn McCarty in Wilmington, Delaware. Editors: Peter Blumberg, Steve Farr

To contact the reporters on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; Phil Milford in Wilmington at pmilford@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.To


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