October 4, 2024 - Late last year, the ghost of Murray Energy nearly derailed the proposed merger between Consol Energy Inc. and Arch Resources Inc., the two coal companies that announced in August a plan to combine and form Core Natural Resources.

At one point during the year-long courtship between Canonsburg-based Consol and St. Louis-based Arch, Consol’s CEO Jimmy Brock told his counterpart to make a decision or move on.

Arch was hung up on Consol’s potential pension liabilities, according to the merger history outlined in a public filing earlier this week.

Arch kept asking for more information, more “clarity” on who would be on the hook for payments to a United Mine Workers of America pension fund, and how big those payments would be.

The pension question dates back to 2013, when Consol — then a coal and gas company — sold its five union mines in West Virginia to Ohio-based Murray Energy, a large private coal producer founded and led by Robert Murray. Workers from those mines and those who retired from them, were part of a multi-company pension plan with the UMWA union. Consol’s deal with Murray transferred those pension obligations along with the mines. At the time, Consol said those obligations had a present value of nearly $1 billion. Getting them off the balance sheet was a major benefit for the coal company.

In 2017, Consol split in two — the natural gas company CNX Resources Corp. and the coal-mining firm that kept the name. When, two years later, Murray Energy filed for bankruptcy and withdrew from the UMWA pension fund, an amorphous cloud of uncertainty had gathered over Consol and CNX. Which one would have to pay for that withdrawal if the pension fund came to collect? And how much?

This was the cloud that nagged Arch’s advisors during negotiations. They wanted to wrap their arms around its boundaries. Depending on the accounting method, estimates for that liability spanned between tens of millions and several billion dollars.

Consol’s board of directors decided that if Arch wasn’t comfortable with the pension question by now, there was no point in continuing the negotiations.

And in mid-December, it looked like the pursuit was over. The companies’ CEOs “determined to officially terminate the discussions,” and each closed their virtual data rooms, halting each others’ access to company documents.

In a meeting the following month, Arch’s advisors seemed to affirm the wisdom of this decision, nothing “the significant perceived risks to Arch stockholders raised by Consol’s exposure to pension plan liabilities and the limited comfort that Arch and its advisors had with the level of information that was available to them at the time.”

Arch’s CEO Paul Lang refocused his efforts on a potential combination with another company that had emerged as a suitor before Consol came on the scene.

Robert Murray, who was replaced as CEO of Ohio-based Murray Energy Corp. when the company filed for bankruptcy protection, is seen here in The Ohio Valley Coal Co.’s Powhatan No. 6 Mine in St. Clairsville, Ohio, April 4, 2016. 

Cathy Bussewitz, John Raby and Ellen Knickmeyer

Coal giant Murray Energy files for bankruptcy, founder replaced

Months passed. Mr. Lang and Mr. Brock talked a few times, about “industry conditions,” but nothing moved on the deal front.

Then, on March 12, Mr. Brock reached out with some news.

There was a number for the liability, a boundary established in a settlement that CNX negotiated with the UMWA pension fund on March 4. CNX had agreed to pay out $75 million over the next five years. It then promptly filed a lawsuit against Consol seeking to recover that settlement payment and other expenses. The two firms had agreed during their split to indemnify each other for claims that might arise afterwards, giving to coal what is coal’s and to gas what is gas’s. In its own public filings, CNX said it had been asking Consol to assume these liabilities for years, believing the coal company to be the responsible party.

The lawsuit is still pending in a court in Delaware, with Consol denying that indemnification applies.

Nevertheless, the news rekindled negotiations between Consol and Arch.

Over the next few months, company executives visited each others’ mines, talked about which company would get the advantage in a stock swap, and proposed various penalties for backing out of the deal, settling on a breakup payment of $82 million due by whichever company pulls out.

On August 21, the companies publicly announced their “merger of equals,” although Consol shareholders will end up controlling 55% of the company at the end of the all-stock deal.

The public filings included no indication of staffing levels following the completion of the merger, but underscored that the headquarters of Core Natural Resources will be in Pittsburgh. Its stock symbol will change to CNR.

The deal must receive antitrust clearances in the U.S., Brazil, China, and Poland. With Brazil’s clearance already in hand, and the U.S.’s expected by Oct. 12, the companies have said they plan to close by the first quarter of next year.

At that point, Consol’s Mr. Brock will become executive chair of the new company and Arch’s Mr. Lang will be its CEO, according to the filing, which also says both men cannot be removed from those positions for two years. Each also stands to earn substantial equity awards when the deal closes ($13 million for Mr. Brock and $9 million for Mr. Lang).

The legal and financial advisors that shepherded the suitors through their courtship and consummation will also get hefty payments. According to the filing, the cost to actually make this merger happen is estimated at $71.2 million.