Oil producer Occidental Petroleum Corp. (NYSE:OXY) said Friday it agreed to purchase Citigroup’s highly-profitable proprietary energy trading group Phibro LLC, for approximately net asset value of the business. According to Occidental, its net investment in the energy unit will be about $250 million.
While the companies didn’t disclose specific terms, Citigroup (NYSE:C) said the sale is not ‘material’ to its earnings, even though the unit has been a consistent profit generator for the company. From 1997 – 2nd Q 2009, Phibro has averaged approx. $200 million per year in pre-tax earnings, while over the last five years the unit’s earnings averaged $371 million per year.
The deal announcement comes days after news reports indicated the New York-based-Citigroup was aiming towards fully divesting the controversial arm rather than spinning it off or selling a partial stake.
In a statement Occidental said Phibro’s management team, headed by controversial boss Andrew Hall, who is set to receive a $100 million paycheck, and its employees will remain with the company after closing. The executives agreed to make a “significant” investment in Phibro with returns on those investments tied to company’s future performance. The company also noted that parts of current and future bonuses for the management team will be retained by Phibro and paid out later.
The deal is slated to close in the fourth quarter and will place Phibro inside Occidental’s midstream segment.
Occidental and Citigroup shares are trading up $0.53 to $80.62, and down $0.03 to $4.62, respectively.