JPMorgan Chase & Co. (JPM) completed the previously announced partial sale of its physical commodities business to Mercuria Energy Group Limited. Despite paying lower than the original price of $3.5 billion, the deal remains the largest acquisition made till date by the privately held Swiss international commodity trading company.
Just a day prior to the completion of this partial divestiture, The Wall Street Journal reported that JPMorgan was selling a much smaller part of its physical-commodities business to Mercuria than previously planned. As a result, the deal value might get slashed to about $800 million from $3.5 billion. However, its financial details were not disclosed at the time of announcing the deal closure.
This partial sell-off deal has its roots in an agreement made between JPMorgan and Mercuria around six months ago, under which the former agreed to vend its physical commodity trading business for $3.5 billion to the Swiss energy trading firm.
Notably, tightened regulations following the financial meltdown, along with higher capital reserve requirements and increased scrutiny by the Federal Reserve, have compelled many banks including JPMorgan to shed their physical commodities business and concentrate more on core businesses. Deutsche Bank AG (DB), Morgan Stanley (MS), Bank of America Corporation (BAC) and Barclays PLC are among such big banks.
JPMorgan completed the partial divestiture through an all-cash deal. Also, it agreed to sell other buyers the physical commodity assets that had originally been included in the original transaction.
On the other hand, the deal, helping Mercuria to expand its business in North America, would be accretive to its financials. The acquisition is also in sync with the firm’s goal to emerge as a global energy-focused commodities group. The deal will complement Mercuria’s physical power, gas and oil operations in North America, and add to its existing client base.
At present, JPMorgan has a Zacks Rank #3 (Hold).
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