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The Federal Trade Commission’s antitrust challenge to Arch Coal Inc.’s acquisition of Triton Coal Co. may be far more significant than whether the deal would raise the price of low-sulfur coal. FTC Chairman Timothy J. Muris said Friday that the litigation could revive a rarely used legal theory to stop mergers. That would put more deals at risk during government reviews. “It could be one of the most fundamental and important cases brought in years,” Muris told lawyers Friday at the American Bar Association antitrust section spring meeting. The FTC charges that the Arch-Triton merger, unveiled in May, could enable coal companies in Wyoming’s Southern Powder River Basin to coordinate their activities. That could result in anything from illegal price-fixing to what is called tacit collusion, a legal practice in which companies raise prices when they see rivals hiking prices. The FTC said such coordination would be more likely because there are only four producers in the market, it is difficult to open a new mine, low-sulfur coal from the Southern Powder River Basin is a homogenous product, power plant demand for the coal does not decline significantly when prices rise and all the coal companies are aware of each other’s operations. Muris said the FTC even has internal Arch documents saying it wanted to acquire Triton to control supply and eliminate a maverick competitor that has been willing to cut prices or increase supply. The agency also has customer complaints, he said. All of this made it hard for the FTC to buy Arch’s argument that the merger would not harm competition, Muris said. “They tell us to ignore the facts because coordination is impossible,” he said. Responding to the FTC chief’s speech, Arch lawyer Jim Rill, a partner at Howrey Simon Arnold & White in Washington, said the facts demonstrate that mining companies in the Southern Powder River Basin expand production when demand increases. The ability of all companies in the market to expand production often argues against charges of collusion because there is too great an incentive to cheat to capture more sales at higher prices. Rill also said the FTC did not give proper weight to the merger’s enormous efficiencies, which could be as much as $300 million over 10 years. These would stem from Arch’s acquisition of a major mine adjacent to its existing facility. In addition, the FTC does not accurately factor in Arch’s plan to divest the Buckskin mine to Peter Kiewit Sons’ Inc. for $80 million, he said, adding the deal ensures that competition is preserved. U.S. District Judge John D. Bates will hear the case. A source said the parties have tentatively agreed on a trial in June, though that is subject to court approval. Arch has agreed not to close the deal until two days after the judge issues his decision. The FTC’s 22-page complaint rests on the theory of “coordinated interaction,” which holds that deals that are more likely to result in collusion violate antitrust law. It differs from the standard basis for merger challenges, which is whether the merged company could profitably raise prices. Much of the complaint is devoted to explaining why the market is susceptible to coordination. The FTC said data on competitor output, sales, prices, capacity and plans are readily available through public and private sources. The agency also said coal company executives telegraph their intentions relating to prices and output by speaking at investor conferences, issuing press releases and attending trade conferences. The FTC described Arch as one of the leading proponents of limiting Southern Powder River Basin coal production. The agency cited Arch president Steven Leer’s May 2000 speech to the Western Coal Council in which he urged cutting coal production to eliminate oversupply in the market. It also noted that Leer touted the benefits of cutting production in April 2003, just a month before unveiling the merger. In addition, the agency cited public statements from other Southern Powder River Basin coal executives discussing steps taken to reduce the surplus supply, including closing down mines. Triton, however, was expanding production, the FTC said, until it entered the merger agreement. The agency also said Triton, which owned the newest mine in the basin, has been the largest source of the increased supply. Jonathan Baker, a professor at American University and a former FTC chief economist, said this last fact should help the government in court because Triton showed it was willing to buck the rest of the industry by increasing production while the rest cut supply. “It is a strong coordination case that tells the story about how the elimination of a maverick would make coordination more effective,” Baker said. Earlier at the ABA meeting, Barry Nigro, FTC deputy director in the Bureau of Competition, said the agency nearly went to court in February to block the deal. The five FTC commissioners voted Feb. 23 to seek a restraining order against Arch and Triton. Copyright �2004 TDD, LLC. All rights reserved.

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