Thursday, May 26, 2011

Bizarre Moves By Massey Shareholders

Several Massey Energy (MEE) shareholders attempted to block the Alpha Natural Resources (ANR) buyout in court today. Talk about shooting yourself in the foot to make a point. The crux of the lawsuit is that MEE shareholders aren't getting fair value due to reckless management. Not to mention if shareholders don't want the merger they can vote it down.

Huh? Just how exactly do they expect to reclaim that value if the deal is blocked? MEE stock would surely drop without a deal. The company has very valuable assets, but its operations continue to struggle making it very difficult to attract much more of a premium.

The funds which include several pension funds claim that Massey's stock is discounted by as much as $1.5B because of management's long disregard for safety. Hmm. Well doesn't that safety record therefore impact any future value? The new CEO would have to clean up the safety record and get operations back to normal prior to getting a higher value. By then though, the met coal market could have fizzled out.

Seems impossible to make such an argument that a company is worth more because of management mistakes. What management team doesn't make mistakes? Sounds like the judge and even the lawyer representing the pension funds understand that not only did MEE benefit from the profits of underinvestment in safety, but that shareholders might benefit from a management team at ANR that has a better safety record.

In the end, MEE shareholders have nothing to gain from a lawsuit against their very own assets. ANR isn't going to pay more so the only winners are the lawyers. If they want to sue the former CEO and BOD directly, then go for it. Maybe thats not possible. As long as it involves MEE assets and not the personal assets of management, then they have nothing to gain.

Not to mention if the goal is hold the former CEO accountable for damages, then shouldn't it be the Feds or local officials? Why of all people would it be shareholders? You can't reopen the mine by winning this lawsuit. Nor can you argue that the stock price has suffered from the explosion as MEE as easily outpaced ANR during the time period from the explosion back in April 2010.

The justification for this lawsuit and the benefits from winning are just bizarre. Let the deal happen and reap the rewards from a met coal powerhouse and a strong management team. Spend the weekend in the Hamptons and enjoy. No reason to sweat the details you can't change.

MEE is worth more in the hands of ANR!



Via Reuters:
  • The funds argue Massey's price is a discount of as much as $1.5 billion because of the impact of management's long disregard for safety, which they argue led to last year's accident in West Virginia that killed 29 miners.
  • The judge, Leo Strine, reminded Grant that shareholders also enjoyed years of windfall profits thanks to Massey's underinvestment in safety.
  • Grant acknowledged that Massey shareholders face an unpleasant choice. A vote to approve the merger puts the business in the hands of Alpha's management, which has a much better safety record.


Disclosure: Long both ANR and MEE in client and personal accounts. Please review the disclaimer page. 




1 comment:

Mark Holder said...

At least the judge blocked these crazy moves so that MEE shareholders wouldn't be further impacted.