CHARLESTON, W.Va. -- Alpha Natural Resources has agreed to buy Massey Energy for about $7.1 billion in cash and stock, the companies announced Saturday.The deal creates a combined company with more than 110 mines and total reserves of about 5 billion tons, including one of the world's largest and highest-quality supplies of metallurgical coal."Alpha and Massey believe the new entity will be well positioned to capitalize on strong global demand trends for coal, including the metallurgical coal used in the steel manufacturing process," the companies said in a news release Saturday. "Further, the combination is expected to permit Alpha and Massey to benefit from geographical and asset diversification, including operations and reserves in Central and Northern Appalachia, the Illinois Basin and the Powder River Basin in Wyoming."Under the terms of the agreement, Massey stockholders will receive 1.025 shares of Alpha stock and $10 in cash for each share of Massey stock. Alpha will own 54 percent of the combined company and Massey will own 46 percent, the companies said. Alpha's bid values Massey stock at $69.33 a share. That's more than 20 percent over Massey's closing price Friday.The deal has a total value of about $8.5 billion, with Alpha paying $7.1 billion in cash and stock and also assuming about $1.4 billion in debt, an Alpha spokesman said.The agreement comes just two months after the announced retirement of controversial Massey CEO Don Blankenship, amid regulatory and financial pressure on Richmond, Va.-based Massey following the deaths of 29 miners in the Upper Big Branch Mine disaster last April 5.Kevin Crutchfield, CEO of Abingdon, Va.-based Alpha, said, "We're very pleased that Massey has chosen to join forces with Alpha and commit to this truly transformational deal."Together, we will be America's largest supplier of metallurgical coal for the world's steel industry and a highly diversified supplier of thermal coal to electric utilities in the U.S. and overseas," Crutchfield said, adding that "the strategic and operational fit of our two companies is clear and compelling.""Together, we are committed to creating a stronger company that has the scale to capitalize on further growth opportunities, succeed in a changing regulatory landscape and maintain the absolute highest standards in safety and environmental excellence," he said.Baxter F. Phillips Jr., Massey's CEO and president, said, "This transaction represents a tremendous opportunity for Massey to partner with our Central Appalachian neighbor, Alpha, to create a new industry leader."After a careful review of a wide range of strategic opportunities, our board unanimously determined that this is the right course for our company," Phillips said. "The merger with Alpha offers Massey stockholders an immediate and substantial premium, as well as the opportunity to participate in the significant value creation opportunities our combination presents."We have always respected Alpha's passion for this business and we believe this is a natural and logical combination that has great upside for our members, communities, customers and other important constituents," Phillips said.The announcement said the boards of Alpha and Massey have approved the terms of the transaction, and have recommended stockholder approvals of the deal. The transaction is expected to close in mid-2011. It is subject to federal regulatory approval, as well as approval by the stockholders of both companies.Alpha has obtained $3.3 billion in financing from Morgan Stanley and Citi, which, in addition to existing cash balances, will be sufficient to finance the deal, the companies said.Massey is probably the best known -- and most controversial -- coal operation in the country, as well as being among the largest in the Appalachian region. It has grown from 3,600 employees a decade ago to 7,300 today. Annual revenue has nearly tripled in that time, to $2.7 billion in 2009.In the past two years alone, Massey has paid the largest fines ever for a coal-mining death case and for water pollution violations by a mining operator -- $4.5 million for the fatal Aracoma Alma No. 1 Mine fire and $20 million in a water pollution deal with the U.S. Environmental Protection Agency.Also, Massey struggled in 2010 to deal with the fallout from Upper Big Branch, the worst U.S. coal-mining disaster in nearly 40 years. While it is perhaps not as well known by the general public in West Virginia, Alpha ranked in 2009 as the fourth-largest coal producer in the United States.Alpha has operations in West Virginia, Virginia, Kentucky, Pennsylvania and Wyoming. In July 2009, Alpha bought Foundation Coal Holdings for $2 billion to add low-cost steam coal to its existing metallurgical coal holdings.Reach Ken Ward Jr. at firstname.lastname@example.org or 304-348-1702.