The Federal Trade Commission (FTC) on Wednesday filed an administrative complaint challenging a proposed joint venture (JV) between the two largest coal-mining companies in the US, on concerns that the transaction will eliminate competition.

Through the transaction, announced in June 2019, Peabody Energy and Arch Coal plan combine their mining operations in the Southern Powder River Basin (SPRB), located in north-eastern Wyoming.

The companies are two major competitors, having produced more than 60% of all SPRB coal mined in 2018.

“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, and that loss of competition would likely raise coal prices to power-generating utilities that provide electricity to millions of Americans,” said FTC Bureau of Competition director Ian Conner.

The FTC said it would also to file 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 that would start on August 11.

Peabody and Arch Coal said that they would litigate FTC’s decision within the US federal court system over the coming months. According to a joint statement, both companies believe that the FTC has incorrectly defined the market, and fails to reflect the true competitive nature of the current US energy landscape.

Peabody president and CEO Glenn Kellow commented that FTC had been provided with “tremendous amounts of evidence” to demonstrate that coal, including SPRB coal, faced intense competition from natural gas and other alternate fuels.

“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."

Moody’s lead coal analyst Benjamin Nelson commented that the FTC move was a credit negative development for both companies.

“While the companies plan to challenge today’s decision, 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, 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.”

The transaction would combine Peabody and Arc Coal’s Powder River Basin and Colorado assets.  Ownership of the JV would be structured with Peabody owning 66.5% and Arch owning 33.5%.  If consummated, the JV is expected to realise yearly synergies of $120-million over an initial ten-year period.

The transaction includes seven of the companies' mines, including Peabody's North Antelope Rochelle mine and Arch's Black Thunder mine, which share a property line of more than seven miles.  Additional assets include the Caballo, Rawhide and Coal Creek mines in Wyoming along with the West Elk and Twentymile mines in Colorado.