By Dow Jones Business News,
February 05, 2014, 11:35:00 AM EDT
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
"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 billionVitol 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.
--Ryan Dezember contributed to this article.
Write to Christian Berthelsen at firstname.lastname@example.org and Sarah Kent at email@example.com
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