Will Massey Buyout Make For Safer Mines?
The ongoing saga of coal mine giant Massey Energy took a much-rumored turn this weekend with an agreement to merge with Alpha Natural Resources, a Virginia-based company, which already owns 26 underground coal mines in Appalachia and Wyoming.
Alpha will absorb Massey and its 61 underground mines in a deal valued at $8.5 billion. Approval by the boards of both companies and the Securities and Exchange Commission and Justice Department will result in a coal mining behemoth that will dominate production of metallurgical coal in Appalachia.
Met coal, as it's called, is used to make steel and demand right now is very high.
The new company will retain the Alpha name, management team and board of directors.
The Massey name will be gone. But what about the company's aggressive resistance to federal regulation and a safety record that is one of the worst in the industry?
"Massey has been historically pretty aggressive in its dealings. Maybe even contentious would be the right word," says Meredith Bandy, the coal equity analyst at BMO Capital Markets. "Alpha's management team tends to be professional and sort of restrained. They're much more low key."
An NPR analysis of federal records finds that Massey violates mine safety regulations at a rate that is a third higher than the violation rate for Alpha. And when compared with violations nationwide, Alpha is 20 percent lower than the national average.
"I think that we've demonstrated through our track record that we've created a fair amount of credibility," said Alpha CEO Kevin Crutchfield in a conference call with industry analysts Monday.
Alpha also has a senior safety and production executive who once worked at the Mine Safety and Health Administration (MSHA) and has been buddies with MSHA coal mine safety chief Kevin Stricklin. Neither Stricklin nor Allen Dupree, Alpha's Vice President for Running Right and Business Excellence, would talk Monday about their working relationship.
"Running Right" is an Alpha program that makes the company's miners and managers responsible for safety problems. The company says the program encourages mine workers to report problems.
"I know that some top management at Alpha has better relationships than Massey management does, less confrontational relationships," says Tony Oppegard, a former MSHA official who represents coal miners suing mining companies. "I hope that that would help when the two sides sit down to discuss safety problems."
Some of Alpha's mines are union mines so the United Mine Workers of America (UMWA) represents about 1,500 of the company's miners. That experience has UMWA spokesman Phil Smith cautiously optimistic about the merger.
"I don't think there's a coal company that likes regulation and… the enhanced regulations that have been the hallmarks of the last several years," Smith says. "That said, Alpha has not been out front trying to wipe out increased enforcement and also not trying to run away from their record like Massey has been trying to do."
Massey insisted it put safety first in its mines even as it amassed thousands of safety citations, violations and fines. The company's Freedom Mine in Kentucky was considered so dangerous federal regulators sought a first-ever federal court injunction that would have put the mine under a judge's supervision. Massey agreed to that supervision in a settlement and announced it would close the mine.
A federal grand jury has been investigating the explosion at Massey's Upper Big Branch mine in West Virginia last April. Company officials and board members are also targets in wrongful death suits filed by relatives of two of the disaster's 29 victims.
But that financial and public relations liability did not deter Alpha.
"There's a worldwide scarcity of metallurgical coal," notes Bandy. "And so when you put these two companies together you get a pretty powerful met coal platform."
Oppegard says the kind of company that emerges will depend on what Alpha does with Massey's management team.
"If Alpha keeps the Massey management team intact in the Appalachian coal fields, then I think we're going to continue to see safety problems at those mines," Oppegard says. "It's hard, but not impossible, to change the thinking of long-time managers just because there's been a corporate change."
Alpha CEO Crutchfield told industry analysts that the company has yet to determine what the combined management team will look like.
Massey's stock skyrocketed Monday, rising nearly 10 percent. It has completely recovered from a 50 percent loss in the aftermath of the April explosion and is now valued higher than the price quoted the day before the blast.
MICHELE NORRIS, host:
This weekend, the huge coal mining company, Massey Energy, agreed to a buyout. The deal is valued at more than $8 billion. Massey owns the Upper Big Branch Mine in West Virginia, where 29 workers died last April. The company is known for amassing thousands of safety violations and for aggressively sparring with federal regulators.
NPR's Howard Berkes has been asking this question: Will anything change under new ownership?
HOWARD BERKES: The company paying billions for Massey Energy is Virginia-based Alpha Natural Resources, which already owns underground coal mines. But it's a marriage blending two very different companies, says Meredith Bandy, the coal equity analyst at BMO Capital Markets.
Ms. MEREDITH BANDY (Coal Equity Analyst, BMO Capital Markets): Alpha's management team tends to be professional and sort of restrained towards the regulators. Massey has historically been pretty aggressive in their dealings, maybe even contentious would be the right word. And Alpha certainly is not like that. They're much more low key.
BERKES: An NPR analysis of federal mine safety records shows that Massey has a rate of safety violations that is a third higher than the rate for Alpha. And Alpha's violations rate is 20 percent lower than the national rate. Alpha also has a senior safety and production executive named Allen Dupree, who not only worked for the Mine Safety and Health Administration, but has been buddies with MSHA's mine safety chief, Kevin Stricklin. Neither would talk today about their working relationship, but some consider it a plus.
Tony Oppegard is a former MSHA official who now represents coal miners in lawsuits against mining companies.
Mr. TONY OPPEGARD (Attorney): I would hope that that would help for the two sides to be able to sit down and discuss safety problems as opposed to the way it is with Massey that when MSHA intervenes, they're butting heads with Massey because Massey wants to do it their own way.
BERKES: Still, some are suspicious about possible cozy relationships between the regulated and the regulators. That leaves Phil Smith of the United Mine Workers Union cautious but optimistic about Alpha's takeover of Massey.
Mr. PHIL SMITH (United Mine Workers Union): You know, I don't think there's any coal company that likes regulation and I don't think there's any coal company that likes the enhanced regulations that are in the hallmark for the last several years. That said, Alpha has not been out front trying to wipe out increased enforcement. And they're also not trying to run away from their record like Massey has been trying to do over the past several years.
BERKES: Massey insisted it put safety first even as it amassed one of the worst safety records in the business. In a conference call with industry analysts today, Alpha's CEO Kevin Crutchfield said this about the company's approach to safety and regulation.
Mr. KEVIN CRUTCHFIELD (CEO, Alpha Natural Resources): I think we've demonstrated through our track record that we've created a fair amount of credibility and we would expect that to continue going forward.
BERKES: The key, some say, is whether Alpha replaces Massey executives and mine managers who may have trouble adapting. Alpha wouldn't say today who would stay or leave. The acquisition must still be approved by the boards of both companies and federal securities and monopoly regulators.
Howard Berkes, NPR News.
ROBERT SIEGEL, host:
This is ALL THINGS CONSIDERED. Transcript provided by NPR, Copyright NPR.