Judge Queries FTC Bid to Block Arch-Peabody Deal As Coal Slumps

The Federal Trade Commission faced a judge’s questions on why the agency is seeking to block Peabody Energy Corp.'s joint venture with Arch Resources Inc. on antitrust grounds when the coal industry continues to struggle and face challenges.

Evidence presented during the nine-day hearing has made it clear that the coal industry is having an “awful” year, Judge Sarah Pitlyk of the U.S. District Court of the Eastern District of Missouri said Monday during closing arguments in the Federal Trade Commission’s case.

“There is evidence that one of these firms might not be able function as well in the future,” Pitlyk said.

“Tell me how I compare this testimony from how people have historically benefited from competition and conceptualize it in light of the changing dynamics of the industry,” Pitlyk asked FTC attorney Daniel Matheson.

Peabody and Arch say the joint venture is necessary for survival as both companies are forced to continually lower their margins in order to compete against low-cost energy alternatives, such as natural gas.

“The world without this deal is significantly reduced production,” said Arch’s attorney, Stephen Weissman of Baker Botts LLP, during closing arguments.

The FTC has argued that a joint venture is likely to raise prices for coal produced in the South Powder River Basin area of Wyoming, a region where Peabody and Arch compete head to head in coal production. The government is seeking a preliminary injunction to stop the deal, a necessary step before the FTC can start its own administrative review process.

Attorneys for Peabody and Arch say the government’s case is flawed since it ignores the competitive dynamics between coal and other energy sources.

“Is there a problem with how they are defining the market?,” Pitlyk asked Peabody’s attorney, Edward Hassi of Debevoise & Plimpton LLP, during closing arguments.

A “properly defined market” must also take into account natural gas, solar, and other forms of renewable energy, Hassi replied.

Arch has done “everything” that it can on its own to boost its margins, but a joint venture with Peabody is critical, Weissman said.

“We ask you to consider the world is a better place with this transaction, lower costs more production, than the hypothetical world, which really is a fantastical world compared to what we are seeing in the marketplace,” Weissman said.

The case is Federal Trade Comm’n v. Peabody Energy Corp., E.D. Mo., No. 4:20-cv-00317, Closing arguments 8/10/20.