* Alpha to pay about $7 bln for Massey - sources
* Deal would combine two major coal companies
* Deal would be latest in wave of sector consolidation (Adds details, background)
By Michael Erman and Paritosh Bansal
NEW YORK, Jan 28, 2011 - Alpha Natural Resources is close to a $7 billion deal to buy Massey Energy Co , which was rocked by a deadly coal mining accident last year, sources familiar with the matter said on Friday.
One of the sources said Massey shareholders will receive slightly more than one Alpha share for each Massey share in addition to $10 per share in cash, for a value of around $68 a share. That represents a nearly 19 percent premium over Massey's closing share price of $57.23 on Friday.
The sources said the deal would be worth about $7 billion to combine two of the biggest companies in the Appalachian coal business in the industry's latest consolidation move.
Surging Asian demand for coal to fuel steel mills and power plants has made the sector one of the hottest for dealmaking over the past year.
Recent deal activity in the sector includes Walter Energy's more than $3 billion deal to buy Canadian rival Western Coal Crop , and Rio Tinto's $3.9 billion bid for Africa-focused coal miner Riversdale Mining Ltd .
Massey has said it was weighing strategic options, sparking market speculation that one of its peers may buy it.
ArcelorMittal , the world's largest steelmaker, and St. Louis-based Arch Coal Inc had been seen as potential bidders for Massey in addition to Alpha.
The likelihood that Massey would be acquired increased with the departure of Chief Executive Don Blankenship at the end of last year. Blankenship had been seen as opposed to selling the company and analysts in December said his departure removed the largest impediment to a deal with Alpha.
Blankenship had led Massey for 20 years and had been criticised by environmentalists for championing surface mining, and by unions for the company's use of non-union labor.
The Wall Street Journal first reported that Abingdon, Virginia-based Alpha and Massey were close to a deal. It said talks were continuing and a deal could be signed on Friday night.
Massey, based in Richmond, Virginia, has been under scrutiny by federal mine safety regulators since an explosion on April 5 last year in one of its West Virginia mines that killed 29 workers, the deadliest U.S. coal mining disaster in 40 years.
Massey disputed claims by federal investigators that excessive coal dust fueled the deadly explosion and has said a natural gas leak caused the accident.
In the months following the disaster, Massey shares lost more than half their value, hitting a low of $25.87 in July. They have since bounced back to above pre-explosion levels, helped by reports that the company would likely be acquired. (Reporting by Michael Erman and Paritosh Bansal; additional reporting and writing by Bill Berkrot and Grant McCool, sourced reuters)