RICHMOND, Va., March 16 /PRNewswire-FirstCall/ -- Massey Energy Company (NYSE: MEE) announced today that it has signed a definitive agreement to purchase Cumberland Resources Corporation and its affiliated companies for $960 million in a combined cash and stock transaction. Cumberland is one of the largest privately held coal producers in the United States with 2009 produced coal revenue of $550 million generated from the production and sale of 7.8 million tons of high quality Central Appalachian coal. Massey will acquire Cumberland free of debt.
Based in Abingdon, Virginia, Cumberland operates primarily underground coal mines in Southwestern Virginia and Eastern Kentucky. Its assets include an estimated 416 million tons of contiguous coal reserves, a preparation plant in Kentucky served by the CSX railroad and a preparation plant in Virginia served by the Norfolk Southern railroad. Of the estimated reserves, Massey believes more than half (216 million tons) have metallurgical coal qualities.
Cumberland's existing operations currently produce both steam and metallurgical quality coals. Approximately 4.8 million tons of its current annual production is of metallurgical quality of which 800,000 tons are currently being sold into the metallurgical coal market. Massey expects to be able to produce approximately 5.0 million tons of metallurgical quality coal annually with the existing Cumberland assets. Massey does not expect any additional development capital would be required to reach this production target.
"We are extremely pleased with this acquisition opportunity and the value it represents for Massey stockholders," said Don Blankenship, Massey Energy Company's Chairman and Chief Executive Officer. "The Cumberland assets and operations will be highly complementary to our existing base and fit well with our strategy in Central Appalachia. Cumberland's track record of low-cost production, their focus on underground mining and their low legacy liabilities are consistent with Massey's history and strategy. We believe this acquisition is an excellent fit for Massey. Our analysis shows it will be accretive to earnings per share beginning this year and we believe it will add significant shareholder value."
Massey believes it will achieve operating synergies when this transaction and the integration of the Cumberland operations are complete. These synergies are expected to result from increased global marketing of metallurgical quality coal through Massey's established sales network, sharing of operational best practices, purchasing synergies and working capital optimization.
Cumberland generated EBITDA of $115 million in 2009 (see note 1). As of December 31, 2009, Cumberland had approximately 8.1 million tons of coal committed and priced for sale in 2010, primarily with thermal coal customers. Massey expects to be able to utilize coal produced from the acquired operations to increase metallurgical coal sales by up to 5 million tons annually over the next couple of years.
On a pro-forma basis, after adding the Cumberland reserves, Massey will have an estimated total reserve base of 2.9 billion tons. An estimated 1.3 billion tons of Massey's total coal reserves are of metallurgical quality.
Commenting on the transaction, Massey's President, Baxter F. Phillips, Jr. said, "Richard Gilliam, Chairman and CEO of Cumberland, and his team have done an excellent job in building a great company. They have a tremendous workforce of over 1,000 talented and experienced miners and support staff that we will be proud to count among our Massey members. We consider ourselves fortunate to have the opportunity for such a quality asset to become part of the Massey organization."
Under the terms of the agreement, the aggregate consideration to be paid by Massey is $960 million, consisting of $640 million in cash and $320 million in shares of Massey's common stock, calculated based upon the average closing price of Massey's common stock for the 20 trading days ending on the day prior to the closing of the acquisition, subject to adjustment for working capital.
The Purchase Agreement contains customary representations, warranties, covenants and conditions, as well as indemnification provisions subject to specified limitations. The closing of the acquisition is subject to the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, certain third-party consents and other customary closing conditions. The acquisition is expected to close in the second quarter of 2010.
The boards of Massey and Cumberland have approved the transaction. In connection with the transaction, Stifel, Nicolaus & Company is acting as advisor and fairness opinion provider to Massey and UBS Investment Bank is acting as lead financial advisor to Cumberland. Troutman Sanders LLP provided legal advice to Massey; and PennStuart LLP, regular counsel to Cumberland, and McGuireWoods LLP, special counsel, provided legal advice to Cumberland and its affiliated companies.
In conjunction with the acquisition announcement, Massey announced that although it has only preliminary data with respect to projected first quarter results, operating results for the first two months of 2010 were below its internal operating forecast and that the full first quarter 2010 results are currently anticipated to also be below forecasted operating results. The shortfall to the operating plan in the first two months was largely the result of continuing weather related disruptions of coal production and shipments. Massey does not intend to update this forecast and actual results for the first quarter of 2010 may be affected by factors other than what is discussed above. Going forward, Massey plans to maintain its established practice of providing guidance on an annual basis in conjunction with its quarterly earnings releases.
Members of the Massey's senior management will hold a conference call to discuss the acquisition on Wednesday, March 17, 2010, at 9:00 a.m. ET. The call can be accessed via the Investor Relations page on the Massey Energy Company website at www.masseyenergyco.com. A replay of the call will be available at the same site through April 15, 2010.
About Massey
Massey Energy Company, headquartered in Richmond, Virginia, with operations in West Virginia, Kentucky and Virginia, is the largest coal company in Central Appalachia and is included the S&P 500 index.
About Cumberland
Cumberland, a privately-owned company headquartered in Abingdon, Virginia, operates underground and surface coal mines in Southwestern Virginia and Eastern Kentucky.
