License article

Commodity trader shake-up grows as Dreyfus sells

The upheaval among the middle ranks of the world's commodity traders intensified today as merchant Louis Dreyfus sold its energy trading division to leading financiers including hedge fund veteran Paul Tudor Jones.

A day after private equity giant Carlyle Group shook up the sector with the purchase of a leading hedge fund, Louis Dreyfus Group and a hedge fund owned by JPMorgan Chase & Co have agreed to sell their jointly owned energy trading business, Louis Dreyfus Highbridge Energy, to two investor groups.

Separately, Morgan Stanley's commodity trading division appears to be closing in on a deal to spin itself out from the bank, which is facing tough new regulations that threaten to curtail bonuses and limit physical trade. It may now sell a majority stake in the unit to the Qatar Investment Authority, more than the minority hold earlier discussed, the Financial Times reported.

While industry giants like Glencore and Vitol have maintained their status quo, the ranks of a dozen or so mid-tier firms have been jolted by a series of acquisitions, start-ups and ownership changes that are dramatically altering the competitive landscape.

It began in 2011 with the rebirth of Sempra's merchant shop in the form of Freepoint Commodities, backed by private equity. This year Japanese trading firm Marubeni Corp inked a deal to buy US grains trader Gavilon.

LDH Energy will be sold for an undisclosed amount to a private investment vehicle owned by Glenn Dubin, and an independent investor group, the companies said.

Dubin is the chairman and co-founder of Highbridge Capital Management, the JPMorgan-owned hedge fund that co-owns LDH Energy.


The independent investor group includes investment vehicles of family trusts including Paul Tudor Jones', one of the biggest names in the hedge fund industry.

The LDH deal, which confirmed an earlier report in the Financial Times, comes at a difficult time for hedge funds.

Between August 2011 and July 2012, hedge funds reported outflows in seven out of 12 months, marking a stark contrast to the previous year, when the industry boasted inflows in 10 out of 12 months and took in $976.2 billion.

Established in December 2006, LDH Energy markets physical commodities from natural gas to crude oil and refined products as well as coal, according to its website.

The sale comes less than four months after the Stamford, Connecticut-headquartered company expanded its global presence into fuel oil by hiring five traders at its offices in Texas, Switzerland and Singapore.

"As we focus our efforts on our core business as a global leader across major commodities, we look forward to maintaining our relationship with LDH Energy as a minority investor," Serge Schoen, chief executive of the Louis Dreyfus Commodities Group said in a statement.

The 160-year-old company has been focused on expanding its core agricultural trading business over the years and ditching other operations like telecommunications and real estate.

But a recent fund-raising bid via Brazilian unit Biosev failed to take off amid weak market conditions, with the group scrapping in August plans for an initial public offering that would have raised as much as $US548 million.

LDH Energy made $US200 million to $US300 million in net profit last year, according to the Financial Times report, adding that the valuation of the business is in "the hundreds of millions of dollars", citing people familiar with the deal.

The transaction is expected to be completed by year-end, after which LDH Energy will be rebranded Castleton Commodities International.