Mercuria: "Behind the $100 Billion Commodity Empire That Few Know"

From Bloomberg:

In less than a decade, Marco Dunand and Daniel Jaeggi have turned a 10-person company supplying oil to a pair of Polish refineries into the world’s fourth-largest commodity trader with revenue topping $100 billion last year.

Now Dunand, 52, and Jaeggi, 53, are executing a plan to propel Geneva-based Mercuria Energy Group Ltd. nearer to the top independent traders, Glencore Xstrata Plc (GLEN), Trafigura Beheer BV and Vitol Group. After entering exclusive talks last month to buy JPMorgan Chase & Co. (JPM)’s $3.3 billion commodities unit, Dunand and Jaeggi will probably announce a deal within the next week, according to two people with knowledge of the situation.

“This gives them a strong opportunity for growth and puts them close to the top players in the league,” said Roland Rechtsteiner, a partner at management consultant Oliver Wyman, who’s published a series of reports on the industry written with Trafigura co-founder Graham Sharp. “Scale is going to be more important than ever.”

Mercuria, named for the Roman god of trade, is targeting a JPMorgan business that includes energy trading and storage assets in North America, where a boom in shale oil and natural gas has transformed the flow of commodities worldwide. The unit has generated $750 million in annual operating profit before compensation costs, according to people who have seen documents circulated in relation to the sale.

Asset Shift
Banks including JPMorgan and Morgan Stanley (MS) are exiting or reducing their commodities businesses as regulators crack down on risk. Revenues for the 10 largest investment-bank commodity businesses fell to $4.5 billion in 2013 from $14 billion in 2008, according to London-based analytics company Coalition.
Independent traders including Mercuria are filling the void. Owning businesses that produce, store, transport or process raw materials can provide an advantage in trading at a time when expanding populations have pushed global commodity demand to a record.

A deal with JPMorgan would further challenge Dunand and Jaeggi, who each own 15 percent of Mercuria’s equity, to integrate the operations into a company that is already growing rapidly. Benoit Lioud, a Mercuria spokesman, declined to comment on talks with JPMorgan.

From 2011 to 2013, Mercuria hired 570 people, including key executives from investment banks as it expanded beyond energy. That took the headcount to 1,200 from about 10 in 2004.

Goldman Vets
The hires include Houston-based Shameek Konar, a former managing director with Goldman Sachs (GS) Group Inc. who is chief investment officer overseeing Mercuria’s corporate development, including the JPMorgan negotiations. Victoria Attwood Scott, Mercuria’s head of compliance, also joined from Goldman Sachs.

Roger Jones, the former head of commodities at Barclays Plc (BARC) who has spent more than a quarter-century trading, was hired in 2012 to head its non-oil business and join the board.

Commodities other than oil now represent more than 50 percent of revenue, which totaled $98 billion in 2012 and generated $343 million in profit, according to financial statements seen by Bloomberg.
“What really makes them different is their growth,” said Olivier Jakob, managing director of Petromatrix GmbH in Zug, Switzerland. “They have grown at a very fast pace in the oil markets, and now they are expanding into other commodities.”

Oil Trading
Mercuria traded 182 million metric tons of oil or oil equivalent in 2012, according to its website. Vitol, the largest independent oil trader, handled 261 million and Trafigura traded 102.8 million tons of oil and petroleum products. Brent crude rose 3.5 percent that year in a fourth annual advance. It slipped 0.3 percent in 2013 and is down 2.6 percent this year at about $108 a barrel.

With more trading companies trying to gain an edge by owning businesses that produce, store or process commodities, Mercuria followed suit. It now has stakes in a coal mine in Indonesia, oil and gas fields in Argentina, oil storage in China and a biodiesel plant in Germany. In June, it invested $50 million in a Romanian gas producer.

The JPMorgan unit employs about 600 and represents a range of assets assembled over decades by firms including Bear Stearns Cos. and RBS Sempra, which the bank bought during an acquisition binge beginning in 2008.....MORE