This NY Times article reports that Merrill Lynch & Co. jumped back into the energy-trading business with an agreement to buy Entergy-Koch, LP — the Houston-based joint-venture trading unit of Entergy Corp. and closely held Koch Industries — for an undisclosed sum.
Merrill is acquiring a trading staff of about 300 people in Houston and London who primarily buy and sell contracts for electricity, natural gas and weather products. Entergy-Koch valued the business unit at approximately $2 billion.
Merrill’s move back into energy trading highlights the emerging role of Wall Street firms with strong credit ratings in the energy trading industry, which was devastated following the demise of Enron Corp.’s dominant online trading business in late 2001. Merrill joins several Wall Street firms that have recently bought substantial trading operations, including Goldman Sachs Group Inc and Morgan Stanley. Generally, the firms are betting on opportunities that recent volatility in energy prices present, such as big energy users hedging their risk on energy prices. Moreover, the energy books often allow the owners to pick up distressed energy-related assets — such as power plants and pipelines — at bargain prices. Those assets can form the basis of hard assets around which energy traders can sell products.

Continental Airlines — one of Houston’s largest employers — announced plans to cut 425 jobs today in a move that the company says will save it $125 million before taxes in 2005 and $200 million a year before taxes by 2007.
In its news release, Continental said that the move, along with other recent efforts to boost revenue and cut costs, should generate a total of about $1.1 billion in pretax benefits. Continental posted a second-quarter loss of $17 million on revenue of $2.51 billion, which the company said was primarily the result of high fuel prices, weak domestic fares, and costs attributable to the early retirement of leased aircraft. The company also warned that existing employees would be asked to take wage and benefit reductions “unless the revenue environment improves dramatically.”
Most of 425 job cuts would be in management and clerical staff, although the exact number of layoffs was not disclosed. Some of the positions that Continental plans to eliminate are already empty and some of the other job cuts will come from normal attrition. The latest round of cuts, most of which are effective immediately, are in addition to the previously announced reduction of 253 reservation positions. After the latest reductions, Continental will have cut its management and clerical work force by almost 25% from levels before the attacks of Sept. 11, 2001 on New York and Washington, D.C.

This Washington Post (free online registration required) article profiles John Keeley, a former FDIC bank examiner who is now the manager of the $155 million Keeley Small Cap Value Fund, which is generating above-average returns by buying shares of U.S. companies that are emerging from bankruptcy or being restructured.
Keely’s fund is up 8.5 percent this year, ranking it second of 146 small-cap value funds tracked by Bloomberg. Only the FBR Small Cap Value Fund recorded a bigger gain. Mr. Keeley, who opened his fund in 1993, holds shares of more than 110 companies and devotes no more than 2 percent of assets to any one stock. His family is the fund’s largest shareholder, with about an 11 percent stake on June 30, including money invested for the college educations of Mr. Keeley’s grandchildren.
While discussing his educational background in evaluating investments, Mr. Keeley passes along this sage advice:

“[T]the greatest education you can get is to get through a bear market.”

A couple of independent Houston grocery institutions decide to merge.

I have been meaning to comment on the contrasting views that James Surowiecki of Marginal Revolution and Holman Jenkins, Jr of the Wall Street Journal ($) have regarding the recent Google IPO. However, Professor Ribstein beat me to the punch and does a better job of analyzing the respective positions than I could have done, anyway.
By the way, is the Professor really recommending that we short Google? ;^)

In the latest deal reflecting that financial services companies are increasingly pursuing consumer lending, Citigroup Inc. announced that would expand its retail-branch presence into Texas by acquiring closely-held, Bryan-based First American Bank SSB. Terms of the cash deal were not disclosed.
With this deal, Citigroup continues its strategy of increasing its domestic banking business, particularly in fast-growing areas. Inasmuch as Citigroup already owns the Mexican bank Grupo Financiero Banamex SA, the First American deal will also facilitate Citigroup’s goal of becoming the key bank for the large Mexican-American community in Texas.
First American has 102 full-service banking facilities across Texas and has been expanding in such key Texas metropolitan areas of Houston, Dallas, and Austin. With $3.5 billion in assets, First American will not have much of a financial impact on Citigroup, which has $1.19 trillion in assets. Nevertheless, the deal may set the stage for other Citigroup acquisitions in Texas. Stayed tuned.

Houston-based El Paso Corp. released some preliminary 2004 financial numbers and previewed its restatement of financial results from 1999 to 2003 following a review of its accounting for natural-gas hedges. El Paso previously announced plans to restate results because of downward revisions to its oil and natural-gas reserves and warned at the time that it likely would have to restate for its hedge accounting as well.
The company said that the revision to its reserves will cut the value of El Paso’s oil and gas assets by $2.7 billion and result in a corresponding after-tax reduction in shareholder equity. El Paso also announced that the restatement to eliminate hedge accounting will result in a $1 billion pretax cumulative charge on shareholder equity and will trigger an additional $1.6 billion in charges.
El Paso has yet to file its financial reports for 2003 or for the first two quarters of 2004. It warned that the 2004 figures it provided today are “subject to further review by El Paso and its independent auditor and, therefore, [are] subject to change.” Not exactly a statement brimming with confidence.
El Paso reduced its net debt by about $1.9 billion in the first six months of the year, finishing the second quarter with net debt of $18.6 billion. The company expects net debt to fall below $17 billion by the end of 2004, and to $15 billion by the end of 2005. In addition, El Paso’s businesses have been somewhat bolstered as high prices for oil and natural gas have been aiding the company’s rebound effort.
Despite the foregoing, El Paso remains a strong candidate for reorganization under chapter 11 as its high debt burden makes an acquisition outside of bankruptcy problematic.

Houston-based Anadarko Petroleum Corp. announced plans today to sell its Gulf of Mexico shelf properties through two deals valued at a total of $1.31 billion. The deals are part of Anadarko’s plan to refocus on exploration and other areas where the company believes it can achieve sustainable growth.
Houston-based Apache Corp. will acquire part of the properties for $537 million and Morgan Stanley’s Capital Group trading unit will pay Anadarko $775 million to acquire an overriding royalty interest in some of the reserves that are expected to be produced over the next four years.
As noted here earlier, Anadarko announced plans in June to sell oil and natural-gas properties valued at about $2.5 billion in connection with its plan the company more competitive by focusing on such areas as exploration and unconventional resource development and exploitation. Anadarko expects to use about $1.4 billion of proceeds from its asset sales to reduce debt and the rest to buy back stock.
By divesting of its Gulf shelf properties, Anadarko will can focus on its Gulf deepwater exploration program, which is expected to be the single-largest contributor to Anadarko’s growth target over the next five years. Anadarko’s shelf (i.e., shallow-water) properties include 78 fields and 112 platforms. When the asset sales are completed, Anadarko will operate only one offshore platform in the Gulf of Mexico.

Professor Depken is providing clear thinking on the Dallas Cowboys’ proposed new stadium deal with Arlington. Check it out.