Merrill Lynch tipped to bid for EKT

Rumours are circulating that Merrill Lynch may snap up Entergy-Koch Trading (EKT) following last week's news that New Orleans-based Entergy Corporation and Wichita's Koch Industries are considering selling their Houston-based energy trading business.

In an equity research note, Prudential financial analyst David Trone said the investment bank is the most likely candidate to purchase the trading operation, which he has valued at around $1 billion. Merrill Lynch spokesman Michael Duvally said the bank would not comment on market speculation.

EKT, with around 700 employees, is one of the largest energy trading companies in the US and Europe. It trades power, natural gas, US air pollution credits and weather derivatives. And, unlike many of its competitors, EKT remained largely immune from the energy trading scandals following Enron's demise.

A purchase by Merrill would aid the bank's re-emerging energy trading business, market participants note. Merrill Lynch relaunched its energy desk last year. The firm hired Scott Kerson, formerly head of commodity marketing for the Americas at Deutsche Bank in New York, to head energy marketing in August 2003. 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 relaunch has been overshadowed by the firm's past record in energy trading, market participants note. 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.

Last month, Merrill signalled its increasing interest in the energy markets by hiring David Mooney, formerly head of power and gas trading at Trafigura in London. Mooney left the Swiss commodity trading house to evaluate commodity hedge funds for Merrill's proprietary investment purposes.