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October 9, 2013 10:23 pm
More than two dozen parties, including pension funds and trading houses, have expressed interest in JPMorgan Chase’s physical commodities operations following the bank’s decision in July to divest the business.
First round offers for the business, one of Wall Street’s biggest traders of cargoes of oil, coal and natural gas, are due before the end of the month, according to people familiar with the situation.
The sale process has begun as the Federal Reserve reviews a series of orders allowing banks to hold physical commodities as a complement to derivatives contracts. JPMorgan received such approval in 2005.
Interested parties have signed non-disclosure agreements to review the offer documents that value the assets of the physical commodities business at $3.3bn and indicate that it produces $750m in annual income before compensation costs. The details were first reported by the Wall Street Journal.
JPMorgan plunged into physical commodities in 2010 with the acquisition of Sempra Commodities, the storied trading house for which it paid $1.7bn and assumed $3.3bn in debt.
Rival commodities businesses are also now on the block. Hess, the US oil group, is seeking a buyer for Hetco, a trading joint venture run by two former Goldman Sachs partners. Hess separately announced on Wednesday the $850m sale of an oil terminals network.
Gavilon is seeking a buyer for its energy business after selling its grain arm to Japanese trading house Marubeni. Morgan Stanley has also been engaged in inconclusive talks to sell a stake in its large commodities business.
Paul Posoli, a former Bear Stearns and Enron executive, is guiding the divestiture for JPMorgan, according to a memo last month issued by global commodities chief Blythe Masters.
JPMorgan may entertain bids for either the entire physical commodities business or separate units, which include base metals, coal, global crude, North American power, North American natural gas, European power and gas and Henry Bath, the metal warehousing group.
The bank valued the global crude division at $1.7bn and North American natural gas at $800m, a person familiar with the matter said. JPMorgan competes with merchants as a supplier to oil refineries. It was the ninth largest gas marketer in North America in the second quarter, ahead of ExxonMobil, according to NGI.
JPMorgan declined to comment.
Some potential buyers were sceptical of the valuation, arguing that physical commodity businesses are generally worth about 3-4 times earnings before interest and tax, and the suggested asset value of the JPMorgan business was roughly twice this multiple.
One commodities executive said there was no point in buying assets when a company could hire traders instead. JPMorgan’s former head of oil, Jeff Frase, recently left to join the trading house Noble Group.
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