Arch-Peabody Deal Hits Major Snag

Feb 26, 2020

Combined coal mine assets
Credit Wyoming Public Radio

This is a developing story.

The Federal Trade Commission has filed an administrative complaint challenging the proposed joint venture between Peabody Energy Corporation and Arch Coal. The federal agency has filed a preliminary injunction for the two companies to maintain the status quo pending a trial in August. In other words, the two companies will keep operations separate for now.

"Whatever the product, the antitrust laws protect customers from mergers that lead to higher prices. This joint venture would eliminate the substantial head-to-head competition between the two largest coal miners in the United States," said Ian Connor, director of the FTC's Bureau of Competition.

Connor said that loss of competition would lead to higher coal prices for utilities that millions of Americans rely on. The Federal Trade Commission works to promote competition and protect consumers.

Last June, Arch and Peabody announced a proposed consolidation of its mines that would free up $820 million over ten years. It would turn the North Antelope Rochelle Mine and Black Thunder Mine into one, lower cost complex. It would also look to make procurement and warehousing more efficient within its various mines in Colorado and Wyoming.

At the time, Gov. Mark Gordon said he spoke with the Peabody president and CEO and perceived the move as a positive step.

"It combines two robust firms and better positions them to be more competitive in a changing market while providing solid employment going forward," he said.

Ben Nelson, Moody's vice president and senior credit officer and lead coal analyst, said FTC's complaint is a not a good sign for coal companies.

"Moody's expects that business conditions for coal producers in the Powder River Basin will remain extremely challenging in light of ongoing secular decline in the demand for thermal coal," he said.

Today, the Governor's office criticized the FTC's complaint saying it could result in workforce impacts.

"I believe this complaint by the Federal Trade Commission is a wrongheaded attempt to drive a nail into an industry which is struggling to adapt to a rapidly changing marketplace," read the press release. "I don't believe the broader energy marketplace will benefit from a challenge to this merger, or see higher prices. We will be watching this court case closely."

Josh Macey, a visiting assistant professor at Cornell Law School, said it makes sense the Governor would criticize the decision.

"The point of the joint venture is to do two things: 1) lay off a bunch of people, but fewer than would be laid off if both continued [while] struggling and 2) constricting supply so they only have market power to sell coal when prices are high enough," he said, adding the only reason to be happy with the FTC's decision is if you think Peabody and Arch can be profitable without joining forces.

The Federal Trade Commission has scheduled an administrative trial to begin on Aug. 11, 2020.

Have a question about this story? Contact the reporter, Cooper McKim, at cmckim5@uwyo.edu.