Antitrust Law Daily JV between two largest U.S. coal producers Arch and Peabody abandoned
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Tuesday, September 29, 2020

JV between two largest U.S. coal producers Arch and Peabody abandoned

By Jeffrey May, J.D.

Following a federal court preliminary injunction win for the FTC, Arch Coal and Peabody Energy dropped their proposed joint venture combining the companies’ Powder River Basin coal mining assets.

The federal district court in St. Louis today granted an FTC request for a preliminary injunction blocking a proposed joint venture (JV) between the two largest coal-mining companies in the United States pending an administrative proceeding on the merits of the JV. In response, Arch Resources, Inc. and Peabody Energy, Inc. abandoned the deal (FTC v. Peabody Energy Corp., FTC Dkt. 9391, Case No. 4:20-cv-00317-SEP).

The court concluded that the FTC showed that there was a reasonable probability that the proposed JV would substantially impair competition in the market for Southern Powder River Basin coal and that the equities weighed in favor of injunctive relief. Thus, Arch and Peabody were enjoined from completing the proposed joint venture of mining assets in Wyoming and Colorado, until the completion of pending FTC administrative proceedings evaluating the proposed transaction.

A Memorandum Opinion detailing the court’s conclusions was not released at that time because the court wanted to provide the parties with an opportunity to redact confidential material. The preliminary injunction hearing was held in July. Closing arguments were heard on August 10.

The FTC challenged the JV in February 2019. According to the agency, Arch and Peabody were the two largest coal producers in the Southern Powder River Basin (SPRB) in Wyoming, and the transaction would have harmed competition in the relevant product market for the sale of SPRB coal. The agency said that SPRB coal was distinguished from coal mined elsewhere by its low cost of production (near the Earth’s surface), its cost-effective heat content, its low sulfur content, and its low sodium content.

In a statement released today, expressing disappointment with the court’s decision, Peabody President and CEO Glenn Kellow said that "the intense all-fuels competition is clearly apparent to us." Peabody, considered the nation’s largest coal producer, argued from the start that it faced intense competition from natural gas and other alternate fuels.

Arch Resources said in a statement that it will terminate its proposed thermal asset joint venture with Peabody, adding that it was "driving forward with its strategic pivot towards steel and metallurgical markets and simultaneously intensifying its pursuit of strategic alternatives for its thermal assets."

FTC Bureau of Competition Director's reaction. "Peabody and Arch Coal’s decision to abandon their joint venture will preserve competition in the market for thermal coal, which is sold to power-generating utilities that provide electricity to millions of Americans," said FTC Bureau of Competition Director Ian Conner in response to the parties’ decision to abandon the deal. "The joint venture likely would have raised the price of coal to the utilities, and ultimately to consumers."

Attorneys: Amy E. Dobrzynski for the FTC. Corey Roush (Akin Gump Strauss Hauer & Feld LLP) and Edward Hassi (Debevoise and Plimpton LLP) for Peabody Energy Corp. Stephen Weissman (Baker Botts LLP) for Arch Coal, Inc.

Companies: Arch Resources, Inc.; Peabody Energy, Inc.

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