Editorial comment
Shareholders have overwhelmingly approved the acquisition of Massey Energy by Alpha Natural Resources (ANR) for US$ 7.1 billion. The combined company will become the world’s third largest metallurgical coal producer behind Anglo-Australian mining giant, BHP Billiton, and Canada’s Teck Resources. Not a bad position, given the high demand for and tightening supply of metallurgical coal around the world – but there is no shortage of challenges either.
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First up will be the fallout from the investigation into the Upper Big Branch (UBB) mine disaster. Massey has been much criticised for its health and environmental practices – practices that were blamed for the UBB disaster by a recent inquiry into the accident. The inquiry, which was commissioned by Joe Manchin, the former governor of West Virginia, accused Massey of operating its mines in “a profoundly reckless manner”, although Massey executives dispute the findings (see p. 5). It is a contrast to ANR's generally good reputation for safety (see DUPREE, A. and GALLICK, J., “Leading from the front”, World Coal (April 2011), pp. 93 - 94).
Integrating Massey with ANR's safety practices will thus be a key challenge ahead. But it is one recognised by ANR's leadership: Michael J. Quillen, ANR's chairman, said in a recent interview that Massey would have to “adapt to the ANR personality and not vice versa. It’s not going to be Massey with another name.” Kevin Crutchfield, ANR's CEO, echoed this, saying that ANR has 600 training sessions set up over the next several months to address these issues.
But it is not just health and safety that will present a challenge to Massey’s new owners: declining production, rising operational costs, high labour turnover and a sometimes fractious relationship with federal regulators will also need to be addressed, as well as number of ongoing legal challenges, including lawsuits filed by families of miners who were killed in the UBB disaster. At the time of writing, there were also two outstanding legal challenges to the sale underway in courts in Delaware and West Virginia, although how these will proceed following shareholder approval is unclear.
ANR's management has a good track record at integrating purchases and they will need to be at the top of their game over the coming months to make this acquisition work. But such a large and potentially game-changing move was never going to be a walk in the park. And as the shareholder voting showed, the rewards for success should be worth it.
