By Christian Berthelsen and Sarah Kent
J.P. Morgan Chase & Co. has selected Swiss trading house
Mercuria Energy Group Ltd. to enter into exclusive negotiations for
the sale of its physical commodity assets, with an agreement
possible by the end of the month, according to a person familiar
with the matter.
A deal would launch Geneva-based Mercuria, which today mainly
trades oil and other energy products, into the top tier of firms
that move industrial commodities around the world. The deal would
also mark the exit of one of Wall Street's biggest participants in
physical commodity markets.
The merchant-trading business in the metals and energy markets
is dominated by three firms-- Glencore Xstrata Plc, Trafigura
Beheer BV and The Vitol Group. Acquiring J.P. Morgan's commodities
unit would put Mercuria, already a top-five energy trader, on more
equal footing, analysts say. Mercuria would overnight gain an
expanded footprint in markets ranging from the storage of copper,
aluminum and other metals to trading in power, natural gas and coal
in North America and Europe.
"If you compare it to Vitol and Glencore, it's not there yet,
but there's still some pretty significant growth and they want to
be one of the major players," said Olivier Jakob, managing director
of Swiss consultancy Petromatrix. Buying JP Morgan's business "will
definitely put them into the top league."
Mercuria is also looking to sell an equity stake of up to 20% in
order to bolster further growth.
Privately held Mercuria was founded 10 years ago by alumni of
Goldman Sachs Group Inc. and has hired several senior former bank
traders from Barclays Plc. and elsewhere. In a 2012 credit facility
filing, the firm reported $98 billion in revenue, under a third of
the $303 billion Vitol reported in revenue that year.
J.P. Morgan announced it would exit physical commodity markets
last summer and began opening its books to potential buyers in
October. At the time, the bank valued the assets at $3.3 billion.
The bank said they generate $750 million in annual revenue before
compensation costs are factored in.
The final sale price hasn't been determined. Also unresolved is
whether J.P. Morgan commodity chief Blythe Masters, who has
considered moving with the trading unit as part of any deal, will
stay with the bank, according to a person close to Ms. Masters.
J.P. Morgan initially marketed the assets to about 50 parties
and received about 20 first-round bids for all or parts of the
package, according to people familiar with the process. In
selecting Mercuria to enter the final phase of the sale process,
J.P. Morgan passed over two other bidders who had survived multiple
rounds of eliminations: Australian bank Macquarie Group Ltd. and
New York private-equity giant Blackstone Group LP.
Other private-equity firms took a look as well, including KKR
& Co. and Carlyle Group LP, according to people familiar with
the matter.
While such firms have lately reaped big profits buying and
selling oil and gas companies and power producers, they have not
dove fully into the broader commodity trading business. Last week
Blackstone President Hamilton "Tony" James said that although the
New York firm has been exploring entry into the commodities
business in recent years, the large amount of capital it would have
to hold to back trades and cover other liabilities, such as oil
spills, was "somewhat incompatible" with Blackstone's desire to
keep a lean balance sheet.
Write to Christian Berthelsen at christian.berthelsen@wsj.com
and Sarah Kent at sarah.kent@wsj.com
Ryan Dezember contributed to this article.
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