US District Court upholds FTC decision blocking Peabody, Arch JV

Houston — A US District Court on Sept. 29 upheld the Federal Trade Commission's decision to block a joint venture between Peabody Energy and Arch Resources.

The proposed tie-up would combine the Western mining assets, in the Powder River Basin as well as Colorado, of the two largest US coal producers.

"We are deeply disappointed with the court's decision as the intense all-fuels competition is clearly apparent to us," said Peabody President and CEO Glenn Kellow in a statement. "Our focus now is on continuing to be the low-cost PRB coal provider to best compete against natural gas and subsidized renewables."

Related: Arch to kill proposed Peabody JV, push pivot toward met

A US District Court on Sept. 29 upheld the Federal Trade Commission's decision to block a joint venture between Peabody Energy and Arch Resources.

In 2019, the two miners produced a combined 189 million st of thermal coal from its PRB and Colorado properties, nearly 27% of the total amount of coal produced in the US last year, according to US government data.

"Notably, the decision has ramifications, not just for [Arch] and [Peabody], but for the entire coal industry, which we would argue is in dire need of consolidation," said Benchmark Company analyst Mark Levin in a research note issued Sept. 29. "We think the ruling will cause other US producers in [Central Appalachia, Northern Appalachia] and the Illinois Basin to think long and hard before consolidating."

The JV was proposed in June of last year and was touted as "highly synergistic," according to joint press release from the two companies. Peabody would manage all operations, but profits and capital requirements would be split in proportion to ownership percentages.

The rationale for the JV included improved efficiencies, mine planning optimization and enhanced blending capabilities. The JV would also have enabled cost savings, which would have helped its thermal coal compete against other fuels, including gas and renewables.

On Feb. 26, the FTC filed an administrative complaint challenging the proposal, alleging "that the transaction will eliminate competition between Peabody and Arch Coal, which are the two major competitors in the market for thermal coal in the Southern Powder River Basin, or SPRB, and the two largest coal-mining companies in the United States."

The Sept. 29 decision by the US District Court for the Eastern District of Missouri found that "the FTC has shown that there is a reasonable probability that the proposed joint venture will substantially impair competition in the market for Southern Powder River Basin coal."