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.