FTC To Challenge Arch Coal's Proposed Acquisition of Triton Coal Company

The Federal Trade Commission has voted to seek an injunction to block Arch Coal Inc.'s (Arch) proposed $364 million acquisition of Triton Coal Company, LLC's (Triton) assets, including the North Rochelle and Buckskin mines, which are located in Wyoming's Southern Powder River Basin (SPRB). According to the FTC, Arch's acquisition of Triton, from its parent company New Vulcan Coal Holdings, LLC (New Vulcan), would be illegal and would reduce competition and increase the likelihood of coordinated interaction among the producers of SPRB coal.

"The acquisition would result in the top three competitors controlling 86 percent of 2003 coal production in the SPRB and would substantially increase the possibility of, and harm from, coordinated interaction by these major players," said Susan Creighton, Director of the FTC's Bureau of Competition. "The Commission action announced today will protect electricity consumers from higher energy prices that would result from reduced competition in SPRB coal, an important low-cost energy source for electric generators."

Parties to the Proposed Transaction

Arch, a corporation organized and existing under Delaware state law, has its principal place of business in St. Louis, Missouri. New Vulcan, a limited liability company that is wholly owned by Vulcan Partners, an investment partnership, also is organized under Delaware state law, and has its principal place of business in Fairview Heights, Illinois. Triton, which is wholly owned by New Vulcan, is organized and exists under Delaware state law, and has its principal place of business in Gillette, Wyoming. Under the May 29, 2003 acquisition agreement, Arch would acquire Triton's Buckskin and North Rochelle mines, as well as other interests from New Vulcan, for approximately $364 million in cash.

The Relevant Market - SPRB Coal

The Commission has identified coal from the SPRB in Wyoming as the relevant market for evaluating the proposed transaction. Coal is a leading energy source in the United States, with coal-fired generating plants accounting for about one-half of all electric power produced nationwide each year. Of the approximately 1.1 billion tons of coal produced in the United States annually, about one-third comes from the SPRB and is eventually burned by electric generators in at least 26 states. In 2003, mines in the SPRB produced about 363 million tons of coal, valued at more than $2 billion.

The SPRB has vast reserves and substantial production of low-sulfur coal that has an energy content of between approximately 8400 and 8800 British Thermal Units (Btus) per pound. SPRB coal is lower in sulfur than most coal mined in the United States and is one of the few coal types that comply with the current sulfur emission limits set by the Clean Air Act Amendments of 1990. It also has a low ash and sodium content, which, combined with its low cost to mine, makes it preferable for use in many electric generators.

The Commission's Competitive Concerns

In authorizing the action under Section 13(b) of the FTC Act, the Commission determined that such an injunction is in the public interest and that it has reason to believe that the acquisition would violate Section 7 of the Clayton Act and Section 5 of the FTC Act because it may substantially lessen competition in coal from the SPRB. The FTC contends that the acquisition would substantially increase concentration and would result in a highly concentrated SPRB market. In 8800 Btu SPRB coal, the acquisition would combine two among only four producers in Tier 1 of the SPRB. Furthermore, the FTC contends that the acquisition would combine the two firms that hold the principal sources of excess capacity in the SPRB, and would bring under Arch's control the principal source of excess capacity for production of 8800 Btu SPRB coal.

Arch proposed a conditional sale of Triton's Buckskin mine to alleviate the competitive concerns raised by the transaction. In rejecting Arch's proposal to sell Buckskin, the Commission observed that Arch's proposal is entirely executory, inasmuch as the arrangement can be altered or abrogated by mutual agreement of the parties. The Commission directed its staff to seek an injunction to block the proposed acquisition regardless of any agreement that Arch may have entered into with a competing bidder for Triton assets, so that competition is preserved during the pendency of a Commission administrative proceeding and full and effective relief can be obtained at the conclusion of that proceeding.

Even if Arch were to acquire only Triton's North Rochelle mine - and not its Buckskin mine - the acquisition would substantially increase concentration in the SPRB and reduce from four to three the number of producers of 8800 Btu coal. The FTC believes that there is an increased risk that Arch, together with either or both of the remaining two SPRB producers of both 8400 and 8800 Btu coal, would have an incentive after the acquisition to coordinate and restrict the supply of SPRB coal or limit its expansion as SPRB coal demand continues to grow. The FTC contends that the proposed acquisition increases the likelihood of coordinated interaction in the market for SPRB coal, a market that is already susceptible to such coordination. The acquisition would make such interaction among SPRB producers, and among producers of 8800 Btu SPRB coal, easier, more likely, more successful, and more durable.

Today's Commission Action

Today's action authorizes the staff to seek a federal district court order to prevent Arch's proposed acquisition of any Triton assets from New Vulcan. The Commission has authorized the staff to file a preliminary injunction action so that the Commission may determine through an administrative proceeding the legality of the acquisition under federal antitrust laws.

The Commission vote authorizing the staff to seek a preliminary injunction was 4-1, with Commissioner Thomas B. Leary voting in the negative. The FTC anticipates that it will file its motion for a preliminary injunction in the U.S. District Court for the District of Columbia, no later than Thursday, April 1, 2004.

Copies of the complaint will be available upon filing in federal court from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC's Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published "Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws," which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.

(FTC File No.: 031-0191)