JP Morgan strikes $1.7 billion deal to buy RBS Sempra units

By Clara Ferreira-Marques and Matt Daily

LONDON/NEW YORK (BestGrowthStock) – JPMorgan Chase & Co will buy the non-U.S. assets of commodities joint venture RBS Sempra from Royal Bank of Scotland and Sempra Energy for $1.7 billion cash, roughly doubling its commodities client base.

The deal could clear the way for Sempra (SRE.N: ) to buy out RBS and take total control of the joint venture’s U.S. trading operation, which provides Sempra with a key profit stream.

Sempra executives told a conference call they may buy RBS’s stake in the U.S. operations of the joint venture, although they remain open to seeking an outside buyer or partner to replace RBS (RBS.L: ).

Sempra has appointed JPMorgan as its adviser as it reviews alternatives.

JPMorgan (JPM.N: ), which has been expanding its commodities arm aggressively in recent years, will take the RBS Sempra global oil and metals and European power and gas assets under the deal, which is set to close in the second quarter.

The bank initially was in talks to buy the whole joint venture. But a proposal by the Obama administration to prohibit proprietary trading by banks prompted JPMorgan leave behind RBS Sempra’s North American power and gas assets.

“I have a high probability chance that Sempra will buy it back,” said Lasan Johong, analyst at RBC Capital Markets.

Valuing the entire partnership at about $4 billion, he said, Sempra could likely buy the U.S. operation for about $88 million, plus its share of the proceeds from the JPMorgan deal announced on Tuesday.

“Given the net economics of the business, this is pretty much a no-brainer,” he added.

Partly-nationalized RBS has been forced to slim down and sell off a string of assets, including its stake in RBS Sempra, which it acquired in April 2008, to appease European Union antitrust concerns after it received billions in state aid during the financial crisis.

The sale of a major part of the RBS Sempra venture marks a key step forward for RBS, which has signaled it wants to move quickly to put the past, and uncertainties related to the sales, behind it.

TOP TIER

JPMorgan is eager to expand its commodities arm, run by Blythe Masters, who has said she wants the bank to become a top-tier franchise globally.

JPMorgan strengthened its North American power and gas assets with the 2008 acquisition of Bear Stearns. Snapping up a large part of RBS Sempra will boost the bank’s aim of taking on the top three commodities firms: Goldman Sachs (GS.N: ), Morgan Stanley (MS.N: ) (Read more about the money market today. ) and Barclays (BARC.L: ).

“This helps us build out our capabilities so that there’s really nothing to separate us from the bulge bracket players who have dominated in this space for the last couple of decades,” Masters told Reuters.

Traders at RBS Sempra — 49 percent owned by Sempra Energy and 51 percent by RBS — welcomed the news of the deal after months of uncertainty prompted a string of staff departures.

“It’s lovely to have some news after four months of knowing nothing. It all looks promising,” said a trader at RBS Sempra. “I wouldn’t expect any job losses … This will be a complement and (it) takes us into a different league.”

SEMPRA OPTIONS

Sempra Chief Executive Donald Felsinger said Sempra and RBS would adjust their current ownership to a 50-50 split after the deal closes in order to make it easier for RBS to sell its U.S. stake.

Sempra said its share of the sale proceeds was expected to be $941 million. The San Diego utility owner generated $274 million in profit from its commodities trading operations in the first nine months of 2009, or about a third of its earnings.

Chief Financial Officer Mark Snell said the company was in talks with both RBS and JPMorgan for the banks to provide liquidity and credit support to Sempra in the event it was to buy out RBS’s stake so that it would not have raise money to support the operation through a share issue.

“That is really the only way that we think this would be a good deal for our shareholders is if we could do a transaction and keep any kind of equity dilution to an absolute minimum or none at all,” he said.

Under the current structure, RBS’s balance sheet carried the liabilities for billions of dollars of trade from the JV’s trading operations.

JPMorgan shares were up 91 cents to $38.86, while Sempra shares pared earlier gains and fell 0.4 percent, or 18 cents, to $49.30, both on the New York Stock Exchange. RBS closed up 5.3 percent in London.

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(Additional reporting by Emma Farge in London and Elinor Comlay in New York; Editing by Dan Lalor, John Wallace and Steve Orlofsky)

JP Morgan strikes $1.7 billion deal to buy RBS Sempra units