* Duquesne Capital says deal hurts Alpha shareholders
* Says new co. more exposed to less-lucrative domestic mkt
* Alpha disappointed,says leading proxy advisers back deal
(Adds Alpha reaction, further background; updates shares)
NEW YORK, July 20 Duquesne Capital Management,
the biggest shareholder of coal company Alpha Natural Resources
ANR.N said on Monday it will vote against Alpha's proposed
$1.5 billion acquisition of Foundation Coal Holdings FCL.N.
Duquesne said it believes the proposed deal will hurt Alpha
shareholders financially and that a merged company would have
more exposure to less-lucrative domestic markets rather than
more profitable steelmaking metallurgical coal and
international thermal coal markets.
"Duquesne sees no advantages to the transaction that can
make up for these serious detriments," the investment firm said
in a statement. "Duquesne believes it is against the best long
term interests of ANR shareholders."
Duquesne owns 5.9 million Alpha shares, which represents
more than 8.3 percent of the miner's outstanding common stock.
The merger transaction is scheduled to be voted on by Alpha
shareholders on July 31.
Alpha's stock closed 5.2 percent higher at $30.10, while
Foundation ended 3.8 percent higher at $31.24 on Monday, on a
day when coal stocks were broadly higher.
Duquesne, which is run by financier Stanley Druckenmiller,
said that after an analysis of Alpha and Foundation it
concluded the proposed transaction is financially dilutive to
Alpha shareholders by $10-$15 per share. It would also increase
balance sheet risk to Alpha through the assumption of
Foundation's $650 million pension liability and $530 million
in net financial debt.
The transaction "is grossly dilutive to ANR's favorable
business posture -- its valuable exposure to the international
metallurgical and thermal coal markets, and its favorable
employee profile," said Duquesne.
At current market prices, metallurgical coal is performing
better than Alpha has assumed, and thermal coal is performing
worse than management has assumed, it said.
Alpha said it was disappointed with Duquesne Capital's
"We have nonetheless been encouraged by the overwhelmingly
positive reception from our shareholders," the company said in
a statement. "The leading four proxy advisory firms have also
recommended shareholders vote for the merger."
Alpha has offered a 35 percent premium for Foundation.
Under the terms of this transaction, Foundation stockholders
would receive 1.084 shares of the new company for each share
held, while each share of Alpha would automatically become one
share of the combined company.
Alpha said in May it expects the deal would add to adjusted
earnings and cash flow earnings in 2010.
Last year, Alpha itself had been the takeover target of
iron ore pellet maker Cliffs Natural Resources Inc (CLF.N). But
the proposed cash and stock deal, valued at about $8.3 billion
last July, fell apart in November under opposition from Cliffs'
largest shareholder, hedge fund Harbinger Capital Partners.
(Reporting by Steve James and Michael Erman, editing by
Matthew Lewis and Tim Dobbyn)