States Bid to Block Arch's Triton Deal

By JIM SUHR
AP Business writer

Apr 2, 2004 -- St. Louis -- Attorneys general in six states joined forces Thursday in suing to block Arch Coal Inc.'s purchase of rival Triton Coal Co., arguing that combining the two key coal producers could result in higher electric utility rates.

The lawsuit, filed in federal district court in Washington, D.C., came two days after the Federal Trade Commission also pledged legal action to stifle the $364 million deal, citing antitrust concerns despite Arch's efforts to allay regulatory worries.

The FTC and the six states argue the purchase by St. Louis-based Arch -- the nation's second-largest coal producer -- of Triton, the seventh-biggest coal producer domestically, would harm competition among coal producers in Wyoming's coal-rich Powder River Basin.

The assets of Triton, a subsidiary of Fairview Heights, Ill.-based New Vulcan Coal Holdings, include the North Rochelle and Buckskin mines in the Wyoming basin.

"If allowed to go through, this merger would combine two of only four major producers of Powder River basin coal," Missouri Attorney General Jay Nixon said. Without that competition, "the incentive to offer lower prices and develop or expand additional mines is gone."

States pressing the lawsuit include Missouri, Kansas, Arkansas, Illinois, Iowa and Texas.

Seeking injunctions against Arch, Triton and its corporate parent, the lawsuit claims the deal would violate federal law barring anticompetitive practices by eliminating direct competition, making it likelier that unilateral market power would be used.

"This deal would only make coordination and collusion among producers easier," Nixon said.

But Arch spokeswoman Kim Link suggested the worries of the suing states were unfounded, and said "we are eager to present the facts in court."

"As heavy consumers of coal-based energy, these states enjoy some of the lowest electricity rates in the nation," she said in a statement, noting that the delivered cost of coal to U.S. power plants has declined steadily for years.

One-third of all coal mined nationwide comes from the Wyoming basin, Nixon said, and the six suing states use nearly half of all the basin's coal burned to generate electricity.

The FTC said Tuesday the deal would result in the top three competitors controlling 86 percent of 2003 coal production in the basin, "substantially" increasing the possibility of collusion among those players.

Steven Leer, Arch's president and chief executive, has countered that "we continue to believe that this acquisition is pro-competitive and would create tremendous efficiencies that would benefit our customers and ultimately consumers of electricity."

Of the roughly 1.1 billion tons of coal produced in the United States each year, about one-third comes from the Wyoming basin and eventually is burned by electric generators in at least 26 states, the FTC said. Last year, mines there yielded about 363 million tons of coal, valued at more than $2 billion.

The Wyoming basin's coal is lower in sulfur than most coal mined elsewhere in the United States and is among the few coal types that comply with the existing sulfur-emission limits set by the Clean Air Act amendments of 1990. It also has a low ash and sodium content that, when combined with its low cost to mine, makes it preferable for use in many electric generators.

In announcing the multistate lawsuit, Kansas Attorney General Phill Kline said "we will not sit idly by and allow the environment to be harmed and the Kansas economy to be mined for profits while leaving Kansas families and businesses to shoulder an increasing burden for basic necessities such as electricity."

Arch, which mines only low-sulfur coal, said the lengthy FTC investigation began after the company announced in May 2003 it had signed a definitive deal to acquire Vulcan Coal Holdings LLC, the owner of the equity of Wyoming-based Triton.

On Jan. 30, Arch agreed to sell the Buckskin Mine -- the source of more than 40 percent of Triton's total production -- to Kiewit Mining Acquisition Co. for $82 million, contingent on finalizing the Vulcan deal.

Arch said this week the Buckskin deal would allow for five major producers to remain in the Southern Powder River Basin, though the FTC's decision to challenge Arch's acquisition of Triton's North Rochelle mine considered the pending sale of Buckskin.

Arch has operations in West Virginia, Kentucky, Virginia, Wyoming, Colorado and Utah, providing fuel for roughly 6 percent of the electricity generated nationwide.

Arch shares fell nine cents to close at $31.30 on the New York Stock Exchange.