Thursday, January 21, 2010

J.P. Morgan Bidding for RBS Sempra Commodities

J.P. Morgan Bidding for RBS Sempra Commodities

In a bid to become of the the top commodity trading firms in the world, J.P. Morgan Chase (NYSE:JPM) is in direct and exclusive talks with Royal Bank of Scotland Group (RBS.LN) to acquire its commodity unit RBS Sempra Commodities.

One of the conditions for RBS to receive billions in aid from the government was it was ordered by the European Union to divest of its 51 percent stake in RBS Sempra Commodities. The company is a joint venture between Sempra Energy (SRE), based in the U.S., and RBS. The British government owns 84 percent of RBS.

The exclusivity of the deal comes after bids from Deutsche Bank AG and Australia's Macquarie Group Ltd. were submitted, and J.P. Morgan evidently made the best offer.

Assuming the deal goes through, the 49 percent stake held by Sempra would be part of the deal, and J.P. Morgan would own the entire company. Lazard Ltd. is handling the sale on behalf of Sempra.

People familiar with the deal said the bids coming in were at about $4 billion, which is only a slight premium over book value.

The original investment on the part of RBS in the joint venture was $1.7 billion, while Sempra Energy invested $1.6 billion in the newly created business at the time it was launched. If there was any funding needed for the businesses, RBS was the one providing it, although it's not clear that's going to be the practice going forward, and more than likely won't be.

The ability to tap into financing by Sempra Energy at the beginning of the business from RBS was one of the key elements to creating RBS Sempra Commodities in the first place. Obviously J.P. Morgan can provide financing, and that's big plus for them on top of the rest of the company's assets and strengths.

On the part of RBS, they were looking to gain access in trading markets in relationship to precious metals and energy.

Other companies like Henry Bath & Son and Sempra Metals and Concentrates Corp. are included in the deal as well, along with the energy trading division of Sempra too.

If J.P. Morgan lands the deal, which they are performing due diligence over at this time, it could be a great boost for them, as commodities are expected to perform well not only in 2010, but possibly for the rest of the decade following.

J.P. Morgan Bidding for RBS Sempra Commodities

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