The details are few and far between, but we can be fairly certain of what it will mean for Don Blankenship, the cantankerous CEO that has led Massey for 20 years. If Massey is sold, he's out of a job. And even if the board doesn't ultimately agree to a transaction, it may conclude that a positive "strategic alternative to enhance shareholder value" will be to ax Blankenship anyway.
Blankenship, who has enjoyed unwavering public support from the board throughout his tenure, is finding himself the odd man out these days. Blankenship did talk of the possibility of a sale last week at an industry conference where he lamented the negative impact that excessive regulatory scrutiny has had on Massey operations. But he has reportedly disagreed with the board about the possibility of a sale behind closed doors.
The future for Massey shareholders, on the other hand, looks a lot brighter, despite the continued fallout from the Upper Big Branch explosion. Massey owns 2.8 billion tons of reserves, 1.3 billion of which are metallurgical coal, used to make steel. And it now owns Cumberland Resources, a privately held company that holds some 416 million tons of coal in reserves -- half of which can be used as met coal. Demand for met coal has risen along with the economic recovery thanks in large part to China and other emerging nations. A tightening market for met coal has driven up the benchmark price 62 percent to $209 a metric ton for the contract ending Dec. 31, according to Bloomberg data.
The upshot? Even with the explosion and increased regulatory scrutiny, acquiring companies will get lots of valuable assets. Possible suitors may try and beat Massey up on the price because of its legal and regulatory problems. But the met coal assets should help keep offers out of the 'bargain basement' range.
What we know, right now
- Massey has retained Perella Weinberg Partners LP and Cravath, Swaine & Moore LLP as financial and legal advisers;
- The board hasn't set a time frame for its evaluation and it may not lead to an actual sales transaction;
- Massey's board won't publicly communicate any developments unless it approves a specific transaction.