Coal miner Massey merges with rival

NEW YORK (CNNMoney) -- Massey Energy, owner of the Upper Big Branch mine in West Virginia that was the site of a tragic explosion last April, was acquired by rival Alpha Natural Resources in a $7.1 billion deal, the companies announced Saturday.

Alpha (ANR), headquartered in Abingdon, Va., paid $69 a share, 21% more than Massey's current stock price. Including debt, the transaction is valued at $8.5 billion.

Last year's accident at Upper Big Branch caused the deaths of 29 miners and raised serious questions about mine safety issues at Richmond, Va.-based Massey (MEE). The company's stock price was more than cut in half from early April through early July of last year.

The federal government has alleged that excessive coal dust in the mine, caused by poor equipment maintenance, was the cause of the explosion. Massey has refuted that argument, however.

But shares surged toward the end of 2010 on speculation that the company would be acquired. Massey's stock, which rose 5% Friday, are now slightly higher than where they were the day of the accident. Steel company ArcelorMittal (MT) and Arch Coal (ACI) were mentioned, in addition to Alpha, in merger rumors.

Takeover chatter intensified after CEO Don Blankenship announced in December that he was retiring. But as recently as late last month, Massey was also said to be interested in buying smaller competitor International Coal Group (ICO) instead of being taken over itself.

The deal between Alpha and Massey combines the third and fourth largest coal producers in the United States. Together, the companies have 110 mines with 5 billion tons of coal reserves.

Massey, which will report its fourth-quarter results on Feb. 1, is expected to post a loss. Sales, however, are forecast to rise 28%.

Demand for coal is expected to remain high in 2011 because of strong economic growth in China, India and other emerging markets. But Peabody Energy (BTU, Fortune 500), the largest coal company in the United States, indicated when it reported earnings last week that there were concerns about supply issues as a result of floods in Australia.