Massey Energy Company History

Address:

4 North 4th Street
Richmond, Virginia 23219
U.S.A.

Telephone: (804) 788-1800
Fax: (804) 788-1870

Public Company
Incorporated: 1924 as Fluor Construction Co.
Employees: 4,552
Sales: $1.63 billion (2002)
Stock Exchanges: New York
Ticker Symbol: MEE
NAIC: 212112 Bituminous Coal Underground Mining

Company Perspectives:

Massey Energy's supply flexibility and controlled production costs provide our customers the security of knowing their supply will be reliable and competitive for a long time to come.

Key Dates:

1920:: A.T. Massey Coal Company (ATM) is formed.
1972:: E. Morgan Massey becomes president of ATM.
1974:: The company is sold to St. Joe Minerals.
1980:: Royal Dutch/Shell Group and St. Joe form the Massey Coal Partnership.
1981:: The Fluor Corporation acquires St. Joe.
1987:: ATM becomes a wholly owned Fluor subsidiary.
2000:: The Fluor Corporation is split into two publicly traded companies, with the coal operations becoming Massey Energy Company.

Company History:

Richmond, Virginia-based Massey Energy Company is one of the top coal miners in the United States. In terms of revenues it ranks as the fifth largest coal company in the country. From 19 mining complexes located in the central Appalachian region of Virginia, West Virginia, and Kentucky, Massey produces more than 40 million tons of coal each year. It serves more than 125 utility, industrial, and metallurgical customers around the world. Massey has a history of violent labor clashes and regulatory violations, and in 2002 many of its executives faced questions about insider stock trading.

Company Origins Dating Back to the Early 1900s

The founding father of Massey Energy was A.T. Massey, who in 1916 began a career as a coal broker in Richmond, Virginia. In 1920 he incorporated A.T. Massey Coal Company, Inc. (ATM) and became its first president. Sons Evan and William took over the business in 1945, with Evan succeeding his father as president of the company. It was Evan's son, E. Morgan Massey, who after graduating from the University of Virginia would be instrumental in shifting the emphasis from selling coal to mining it. According to company documents, ATM acquired its first mining operation in 1945, when Morgan was still a college student. According to the Cincinnati Enquirer, ATM acquired its first mine in West Virginia in 1949. A 1985 Business Week profile of Massey maintains that after he graduated from college and joined the family business he "asserted his independence by pushing to move the brokerage company into the profitable but troublesome mining business. Massey's first move--a $10,000 investment in a coal venture--had to be made without his father's knowledge. And when he finally was permitted to take the company into mining, Massey was allowed to use only the profits from his own operations to expand." Despite these difficult ground rules he was able to succeed, leading to the transformation of ATM into a mining company. It was also while Massey was managing his first mining venture that he developed an antipathy for unions. According to Business Week, "The young manager daily shoveled coal alongside his 15 workers; when the union arrived to organize the fledgling West Virginia operation, he joined up. But six months later, Massey recalls, a UMW [United Mine Workers] official told him 'management can't be a member of the union.'"

Morgan Massey's uncle became president of ATM in 1962, as the company continued to expand its mining interests. The Peerless Eagle Coal Company was acquired in 1965, and the Martin County Coal Corporation was established in 1969. Another subsidiary, Omar Mining Company, launched in the 1950s, expanded its operations from Logan County, West Virginia, to Boone County, West Virginia. In 1972, Morgan Massey, now 46 years old, took over as president of ATM. Two years later Massey, along with his brother and uncle, sold ATM to St. Joe Minerals Corp. for 14 percent of St. Joe stock, valued at approximately $56 million.

Massey stayed on as president to run ATM for St. Joe. Due to the oil crisis of the 1970s the importance of coal in meeting the country's energy needs increased, as did the value of ATM. Companies like ATM were optimistic about the future and began to expand mining capacity and their holdings in the coal industry. In 1974 ATM bought Rawl Sales & Processing Co. It acquired the Tennessee Consolidated Coal Company in 1976. ATM launched two businesses in 1978: Massey Coal Services and Elk Run Coal Company.

Fluor Corporation's Purchase of Half of ATM in 1981

St. Joe in 1980 sold half of ATM to an oil company, Royal Dutch/Shell Group, resulting in a new entity: Massey Coal Partnership. A year later this arrangement changed when Los Angeles-based Fluor Corporation bought St. Joe, taking over its interest in ATM at a time when the price of commodities, such as coal, gold, and lead were soaring. Fluor, a major construction and engineering firm, bought St. Joe as a way to shelter it from the cyclical nature of its core business. It turned out to be a poor bet because commodity prices plunged, so that in the mid-1980s Fluor shed St. Joe's gold and lead assets. It retained ATM, however, and in 1987 bought out Shell, making ATM a wholly owned Fluor subsidiary.

During the mid-1980s the coal industry suffered from problems of excess supply, the result of overexpansion in the late 1970s and early 1980s. Because coal prices fell or remained flat, coal companies had to find ways to cut costs in order to counterbalance inflation and maintain profits. ATM made use of contract mines. Although the company directly mined the richest coal seams, it contracted out the less desirable deposits to contractors in order to squeeze what they could out of the properties. Moreover, small operators could fly under the radar screen of both regulators and the union. As explained by ATM CEO and Chairman Don Blankenship in a 2002 interview: "The general view was that small contractors could pay less because the union wouldn't focus on them. They could get by with more because the regulators wouldn't hold them to the same standards. And that was the way it was, and that was the way companies survived, particularly in the 1980s."

Another important way to contain costs was to cut back on labor costs. In the mid-1980s ATM became involved in one of the most bitter labor disputes in decades when Massey faced off against the United Mine Workers (UMW). It was Blankenship who in 1984 urged Massey to take on the UMW, which was looking to negotiate one contract that would cover all of ATM's 120 mines and subsidiaries. Blankenship and Massey wanted each mine to negotiate an individual contract, arguing that each mine was a separate profit center and operated under different conditions. For the UMW the confrontation with ATM took on greater importance because its leaders felt the need to demonstrate that the union was still a powerful force. Moreover, its fight with ATM became something of a proxy for labor in general. But there was no doubt that the UMW was not the all-powerful organization it once was. It represented about 160,000 working miners in 1978, but that number fell to 110,000 by 1985. Part of the reason the UMW was losing strength was simply because the coal industry was moving to the west where companies could engage in cheaper surface mining, and where UMW was little represented. Because UMW mines now contributed less than 40 percent of all coal products, the union simply lacked the same economic clout should it choose to launch a massive strike. Instead, the UMW decided to strike selected mines in order to gain a uniform contract.

The ATM asset the UMW singled out for a strike beginning in the autumn of 1984 was the operation run by Blankenship: Rawls Sales & Processing Co. The mine was located in the Tug Fork Valley section of West Virginia, near the Kentucky border, where the legendary "Matewan massacre" took place some 65 years earlier, which cost nine people their lives as area miners attempted to unionize. This contemporary labor fight pitted 1,500 UMW members against ATM, and like its predecessor it became violent and drawn out. In August 1985 Time magazine set the scene: "Violence has become almost monotonous. In the latest incident, a midnight explosion last week rocked the three-story brick district headquarters of the U.M.W. in Pikeville, Ky., incidentally shattering a huge portrait of the late union leader John L. Lewis that hung on the wall. The strike had produced one death, hundreds of injuries and more than a thousand episodes of rock throwing, smashed windshields and punctured tires. Gunfire has been commonplace. Snipers killed a nonunion coal-truck driver, Hayes West, 35, in a convoy crossing Coeburn Mountain in late May. Gunfire wounded miner Judy Mullins, 40, in the hand in July while she was picketing in Canada, Ky." On a single day 11 bullets were fired into Blankenship's office. One smashed through a television, which became a memento for him of this turbulent period. The strike lasted for 15 months before the UMW called it off, agreeing to negotiate separate contracts with ATM's 17 major subsidiaries.

While many rival coal companies abandoned the central Appalachian area, ATM, starting in 1988, began to snap up reserves at reasonable prices. In particular, ATM bolstered its supply of metallurgical coal, which was a high-quality product suitable for steelmaking. Because an influx of cheap foreign steel crippled American steel companies, many coal companies dropped out of the metallurgical coal business, leaving ATM to pick up reserves at discount prices. The decision worked out so well for ATM that it was soon producing over a third of Fluor's operating profit despite generating just 10 percent of its revenues.

Don Blankenship Becoming President in 1990

After running two more of ATM's mining operations since his strike-breaking days at Rawls Sales, Blankenship became ATM's president in July 1990. The son of a grocer, he was raised in the coalfields of West Virginia and worked in the coal mines during college breaks. Massey now assumed the newly created posts of chairman and chief executive officer. These management changes came at a time when Fluor had retained Shearson Lehman Hutton Inc. to evaluate what it should do with its coal assets, and made it clear that it might opt to sell ATM. In the end, Fluor held on to ATM, as Blankenship took over the running of the company. He was especially interested in new federal clean air requirements, which he believed would bode well for low-sulfur coal producers such as ATM. As a consequence, he was responsible for ATM continuing to buy up reserves during the rest of the 1990s. He became ATM's chair and CEO in 1992, following Massey's retirement. His bet on low-sulfur coal paid off, as demand rose and with it ATM's profits, making the company one of Fluor's crown jewels by 1997 when the engineering and construction side of the business suffered through difficult times. It was also during this period that Fluor began to search for a new chief executive and Blankenship was regarded as one of the leading candidates.

Blankenship lost out on the top slot at Fluor, but then Fluor's board decided in 2000 to split the company into two publicly traded companies, one composed of the engineering and construction assets and the other ATM, which by now was beginning to struggle. The deal was structured as a reverse spinoff, so that the construction business became a new public company while the old Fluor Corporation retained the coal operations and subsequently changed its name to Massey Energy Company. The company had $2 billion in assets and was left with some $500 million in debt.

While Massey Energy was being formed in 2000, it suffered a public relations hit when in October 2000 a wastewater reservoir collapsed above an abandoned mine and sent 230 million gallons of black sludge coursing through a tributary of the Big Sandy River. The Exxon Valdez crude oil spill, by way of comparison, leaked just 5 percent of that amount. Fish and plants were killed a full 36 miles downstream of the reservoir and the water supply of several towns was shut down for weeks. ATM ultimately paid $40 million in clean-up costs. While management maintained that the spill was an "act of God," Kentucky's Mine Safety and Health Administration as well as its Office of Surface Mining concluded that the barrier between the mine and the river was simply too thin. To make matters worse, several months later, in June 2001, a pump in another ATM mine developed a leak and before it was shut down it allowed 30,000 gallons of sludge to pour into a nearby stream. ATM failed to report the incident to authorities, who only learned of the matter when citizens called to complain that Robinson Creek had turned black. Other illegal discharges followed. According to a 2003 Forbes article, "Over the two years through 2001 Massey was cited by West Virginia officials for violating regulations 501 times. ... These regulations can grow teeth. Regulators, citing a pattern of violations, have been slapping Massey with 'show cause' orders. They will suspend, even permanently revoke, permits to mine or process or store coal if the company doesn't show it has mended its ways. If a permit is revoked, it could prove a 'death sentence,' in the words of one Massey lawyer, because that would make it difficult for other permits to be issued or an old one renewed. A company spokesperson says that that is an 'unlikely' scenario because it would be 'suicide' for the state."

Massey Energy faced other challenges as it became an independent company. According to Forbes, "In the winter of 2000-01 electricity demand rose and the spot price for central Appalachian coal jumped from $24 a ton to $48 a ton. Mining companies began digging furiously, hiring more workers and pushing up wages. Blankenship refused to match the increase. Miners quit in droves. The timing was awful. Blankenship had planned to increase Massey coal production for the coming year from 44 million tons to 56 million tons and so needed to add staff. He had to turn to people with little experience. By the end of 2001 half of his 5,000-person staff were new hires." As a result, productivity fell, as did operating margins.

Massey Energy endured bad news on a number of fronts in 2002 and 2003. It was found by a jury to have defrauded another coal company, Harman Mining Co., and was hit with a $50 million verdict. Blankenship and ten other current or former company officers and Massey Energy were sued by disgruntled shareholders who maintained that insiders sold shares shortly before the price of the stock dropped from $22 to $12 per share. Early in 2003 Massey lost $10 million in an arbitrated case with Duke Energy over a coal supply contract, then a few days later announced that its corporate financial filings were being reviewed by the Securities and Exchange Commission. In April 2003 the company agreed to make changes to its 2001 and 2002 filings, but according to Blankenship the impact on shareholders was minor. Instead of a loss of $30 million in fiscal 2002, it now recorded a loss of $32.6 million. Nevertheless, the news did little to improve the public image of Massey Energy.

Principal Subsidiaries: A.T. Massey Coal Company, Inc.; Massey Coal Sales Company; Massey Coal Export, Ltd.; Massey Coal Services, Inc.; Massey Consulting Services, Inc.

Principal Competitors: Arch Coal, Inc.; CONSOL Energy Inc.; Peabody Energy Corporation; Alliance Resource Partners, L.P.; NACCO Industries, Inc.; Horizon Natural Resources Company.

Massey Energy Company History

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Company History:

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