EKT has not divulged the value of the sale, which is still subject to regulatory approval. Prudential financial analyst David Trone, however, has valued EKT at around $1 billion. The transaction does not include a sale of the Gulf South Pipeline, which provides gas transportation and storage services. EKT is expected to auction this asset separately.
The purchase marks the latest in a series of attempts for Merrill Lynch to re-enter the energy trading market. The bank re-launched its energy desk last year, hiring Scott Kerson, formerly head of commodity marketing for the Americas at Deutsche Bank in New York, to head up energy marketing. And Kuljinder Chase, previously head of energy trading at Allegheny Energy, joined Merrill in May 2003 as head of its natural gas and oil trading business.
But the re-launch has been over-shadowed by the firm's past record in energy trading, market participants note. Merrill Lynch exited energy trading in March 2001 when it sold its trading desk to Allegheny Energy for $490 million, but the companies are engaged in a lawsuit, with Merrill alleging it was never paid in full and Allegheny alleging it was misled about the unit's finances.
Daniel Gordon, who previously headed Merrill Lynch global energy markets, last year pleaded guilty to a $43 million fraud. He now faces a prison term of 55 years and fines of $1.25 million for three charges, which include conspiracy to falsify books and records.
To date, EKT has focused its trading activities primarily on natural gas, electricity and weather-related contracts. But market participants expect Merrill to expand the business into other aspects of energy trading, including coal and oil.
Merrill Lynch has also signalled its increasing interest in the energy funds business by hiring David Mooney, formerly head of power and gas trading at Trafigura in London. Mooney left the Swiss commodity trading house earlier this year to evaluate commodity hedge funds for Merrill Lynch's proprietary investment purposes.
If successful, Merrill Lynch's purchase of EKT would make it one of the top-three energy trading companies in the world, along with Morgan Stanley and Goldman Sachs.