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US FTC files suit against Peabody, Arch thermal coal JV, citing substantial loss of market competition

Highlights

JV viewed as eliminating substantial competition

Peabody, Arch to continue pursuing JV

Houston — The Federal Trade Commission challenged Peabody Energy and Arch Coal's proposed joint venture based on the view that the transaction would eliminate competition in the thermal coal market in the Southern Powder River Basin.

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"Whatever the product, the antitrust laws protect customers from mergers that lead to higher prices," Ian Connor, director of the FTC's Bureau of Competition, said in the statement. "This joint venture would eliminate the substantial head-to-head competition between the two largest coal miners in the United States, and that loss of competition would likely raise coal prices to power-generating utilities that provide electricity to millions of Americans."

In 2018, the complaint stated, Peabody and Arch produced more than 60% of all SPRB coal mined, and that the two producers together own over 60% of all SPRB reserves.

Since power generators designed to burn SPRB coal have high fixed costs, units cannot easily replace SPRB coal with natural gas, wind, sun or nuclear fuels, the FTC said.

The FTC also filed a complaint for a temporary restraining order and preliminary injunction in the US District Court for the Eastern District of Missouri to maintain the status quo pending an administrative trial on the merits.

The administrative trial is scheduled to begin on August 11.

PRODUCERS' RESPONSE

Peabody and Arch announced their intent to continue pursuing the JV to strengthen coal's competitiveness with other energy sources and create substantial value for stakeholders, following the FTC's suit.

The JV, which was first announced in June 2019, would combine the two biggest US producers' western US assets, including both Powder River Basin and Colorado mines. In 2019, Arch produced 74.6 million st in the PRB and 4.1 million st in Colorado, while Peabody output was 108 million st in the PRB and 2.6 million st in Colorado.

"The proposed joint venture offers a clear and compelling path to strengthen both our and our customers' ability to compete in today's marketplace with electricity produced from coal," Peabody President and CEO Glenn Kellow said.

"We have provided tremendous amounts of evidence to the FTC during an extensive review, fully demonstrating that coal, including Southern Powder River Basin coal, faces intense competition from natural gas and other alternate fuels," Kellow said. "We believe that the commission has reached an incorrect decision that should be rapidly remedied within the court system to allow customers and others to benefit from the combination."

The producers will litigate the FTC's decision within the US federal court system

Arch CEO John Eaves added that "we view the need for this combination as self-evident. The proposed joint venture promises to enhance the cost-competitiveness of our thermal operations, enable us to serve the evolving needs of domestic power generators well into the future, and protect the value of our thermal assets for our shareholders."

"In short, it will create a stable, durable supply platform for our thermal customers even as we continue our organizational pivot towards global metallurgical markets," Eaves said.