The US Federal Trade Commission (FTC) has rejected Peabody Energy Corp. and Arch Coal’s plans to combine their operations in Wyoming and Colorado, saying it would limit competition and raise prices.
The joint venture, announced by the country’s two largest coal miners last year, would run seven mines in the Powder River Basin (PRB), where Peabody and Arch Coal accounted for over 65% of all the coal mined there in 2018.
The FTC has requested an administrative trial and, in the
meantime, a temporary restraining order and preliminary injunction for the deal,
which could generate $120 million in annual cost savings for the companies over
a decade.
“Whatever the product, the antitrust laws protect customers from mergers that lead to higher prices,” Ian Conner, 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.”
Peabody and Arch Coal replied they intend to challenge the
FTC’s decision in the coming months, adding they will continue to pursue the business
combination.
“We have provided tremendous amounts of evidence to the FTC during an extensive review, fully demonstrating that coal … faces intense competition from natural gas and other alternate fuels,” Peabody chief executive officer, Glenn Kellow, said in a separate statement.
Moody’s lead coal analyst, Benjamin Nelson, said
that, regardless of whether or not the JV can go ahead, business conditions for
coal producers in the PRB will remain extremely challenging.
Nelson cited among the reasons for the bleak outlook an “ongoing
secular decline in the demand for thermal coal, low natural gas prices
encouraging switching in the near-to-medium term and far fewer opportunities
to export coal compared to other coal basins in part due to social opposition
in the Pacific Northwest.”
US government data released in early February show that production
in the country’s top coal- region fell almost 14% in the three last
month of 2019 to the lowest in over two decades.
The weak quarter capped a tumultuous year of mine shutdowns and bankruptcies in the basin, including Blackhawk Mining, Blackjewel, Cambrian Holding Co., Cloud Peak Energy and New Trinity Coal. Two other miners, Mission Coal and Westmoreland Coal, went bust in October 2018.