Arch Coal and Peabody to Combine Assets

Arch Coal  (NYSE:ARCH) and Peabody Energy (NYSE: BTU) have entered into a definitive agreement to combine the companies’ Powder River Basin and Colorado assets in a joint venture aimed at strengthening the competitiveness of coal against natural gas and renewables.

As quoted from the press release:

The joint venture is expected to unlock synergies with a pre-tax net present value of approximately US$820 million. Average joint venture synergies are projected to be approximately US$120 million per year over the initial 10 years. The joint venture will be 33.5 percent owned by Arch and 66.5 percent owned by Peabody.

“We are excited about this transaction’s potential to enhance the value of Arch’s top-tier thermal coal assets,” said Arch CEO John Eaves. “This new joint venture should allow us to realize the full potential of our valuable assets in the Powder River Basin and Colorado and benefit our customers in the process. The significant operating synergies will enhance the competitiveness of these assets and also enable us to continue to generate long-term, sustainable returns for our shareholders. We look forward to completing this transaction in a timely manner.”

“The Peabody/Arch joint venture is an extraordinary example of industrial logic targeted to strengthen the competitive position of our products and create significant value for multiple stakeholders in a low-cost combination with exceptional physical synergies,” said Peabody president and CEO Glenn Kellow. “The transaction unites two strong, culturally aligned workforces with a commitment to core values such as safety and sustainability. We believe this joint venture allows us to offer enhanced products and security of supply for customers, increased value for shareholders, greater efficiencies for railroads, long-term opportunities for employees and strength for the communities in which we operate.”

Governance of the joint venture will consist of a five-member board of managers appointed by Arch and Peabody. Each party will have voting rights in proportion to its ownership percentages, with certain items requiring supermajority approval. As the operator, Peabody will manage all activities including the marketing of coal. Arch and Peabody will share profits, capital requirements and cash distributions of the joint venture in proportion to ownership percentages.

Click here to read the full announcement