A Detour on the Way to a Proxy Fight

RICHMOND, Va. (HedgeWorld.com)--The annual shareholders meeting of Massey Energy Corp. featured a question-and-answer session that demonstrated many of the shareholders have concerns far from those at the center of the proxy fight between Massey's management and Third Point LLC, the corporate-activist hedge fund.

The proxy fight came about because Third Point and its ally, hedge fund Jana Partners LLC, have contended for months that Massey should take on more debt in order to finance a stock repurchase plan. Massey does have a stock purchase plan, and on May 11 it announced the initiation of those repurchases.

But the hedge funds argued that the $50 million set aside for this plan is too little. In a "Dear Fellow Stockholder" letter dated May 10, Third Point's two nominees to Massey's board, Daniel S. Loeb and Todd Q. Swanson, denied rumors they would leverage the company with debt to increase the buyback plan to $1.5 billion. But they did say that leverage "is an important tool that can be used by the board of directors to significantly improve returns to shareholders, particularly when used to repurchase shares ahead of increasing free cash flow."

After the shareholders meeting, Massey announced that it could be weeks yet before any official certification of the voting results.

At the meeting, which lasted a little more than an hour, most of the attention was devoted to issues of social responsibility and environmental stewardship. Don Blankenship, Massey's chairman, chief executive and president, opened the meeting with a statement about Massey's safety and "dedication to providing a safe workplace." He then spoke generally of the company's "strategic positioning" and how it "has and will continue to increase shareholder value."

After some intervening routine business, Mr. Blankenship turned the floor over to Mr. Loeb for a five-minute presentation of his case. Mr. Loeb barely took one minute of that time, chiefly for the purpose of saying that if he and Mr. Swanson are elected, "I really look forward to putting the conflict of the proxy contest behind us and working constructively with the other members of the board and getting the company on the right corporate-governance track."

Mr. Blankenship then opened the floor to questions and comments, and the meeting took its turn, becoming largely a debate over mining through mountaintop removal, and its effect on the water supply.

One of these questions came from a spokeswoman for the Sisters of St. Joseph of Wheeling, W.Va. She said that the Sisters are Massey shareholders and are members of the Interfaith Center for Corporate Responsibility in New York. She said that in West Virginia communities where Massey Energy operates and mountaintop removal takes place, such activity "affects the land, the water, and the health in the communities which are impacted," and that after the coal is gone, the land is "barely usable for other purposes."

Mr. Blankenship passed that question to one of the directors, E. Gordon Gee, who responded, "We have had independent environmental monitors who have come forward to take a look at what we're doing to make sure that we're meeting our environmental standards," and he assured the Sister of the board's determination to "do precisely what is right for West Virginians."

A Sister of Charity from Cincinnati, Ohio, also affiliated with the Interfaith Center, then spoke, saying that mountaintop removal is destroying communities that have lived in these mountains for generations. "One of the most devastating effects of this process is what has happened to the water supply" in the Appalachian region because the run-off from the process gets into the groundwater.

Mr. Blankenship disagreed. The regulations designed to protect water supplies are "extremely strict," he said, and "we're constantly monitoring that with thousands and thousands of water samples." He said that he lives right in the middle of surface mines himself, as do his friends and relatives, and so is personally concerned with such issues. He also said "we've cleaned up more messes ... than any coal company in the history of West Virginia," as they've acquired the assets of companies that have gone out of business in recent decades.

And so it went, with another Interfaith Coalition-affiliated stockholder telling Mr. Blankenship that the company has been "using bigger machines but also hiring fewer people, to do greater irreversible damage." She urged the corporation to "pay attention" and "protect families."

To this Mr. Blankenship replied, "West Virginia does have a lot of challenges," but that for the last 36 years, "at least since 1970," Massey has been committed to doing its work in a manner "as safe and as environmentally friendly as we can."

CFaille@HedgeWorld.com

Contact Bob Keane with questions or comments at bkeane@investmentadvisor.com.

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