Summary
Sempra Energy (SRE) announced on July 9, 2007, the formation of a material definitive agreement to establish a joint venture named RBS Sempra Commodities LLP with The Royal Bank of Scotland plc (RBS). This partnership is designed to acquire and operate Sempra Energy's commodity-marketing businesses. Sempra Energy will contribute $1.3 billion and RBS will contribute $1.355 billion in initial equity investments, with RBS providing additional funding for ongoing operations. The partnership's governance will be controlled by RBS, with four directors appointed by RBS and three by Sempra Energy, although Sempra Energy retains veto rights over significant business decisions. The profit and loss allocation is structured with a preferred return for both parties, followed by a tiered profit-sharing arrangement that heavily favors Sempra Energy on the initial $500 million in pre-tax income and then shifts to a 70%/30% split in favor of RBS for remaining income. Losses will be shared equally. The agreement includes non-compete clauses for both parties for four years, limitations on the sale of partnership interests for the same period, and specific rights for Sempra Energy to sell its interest to RBS, including arbitration for pricing, with caps on valuation. The transaction is expected to close by the end of 2007, subject to regulatory approvals.
Key Highlights
- 1Formation of RBS Sempra Commodities LLP, a joint venture with The Royal Bank of Scotland plc, to acquire Sempra Energy's commodity-marketing businesses.
- 2Sempra Energy and RBS will make initial equity investments of $1.3 billion and $1.355 billion, respectively. RBS will fund ongoing operational expenses.
- 3RBS will have majority control over the partnership's board with 4 directors vs. Sempra Energy's 3, but Sempra Energy has veto rights on key strategic decisions.
- 4Profit allocation involves a preferred 15% return for both parties, then a tiered split (Sempra: 70%/30% on first $500M, RBS: 70%/30% thereafter). Losses are shared equally.
- 5Four-year non-compete clauses are in effect for both Sempra Energy and RBS regarding the partnership's core business activities.
- 6Restrictions on selling partnership interests for four years, with specific rights for Sempra Energy to sell to RBS, including binding arbitration for pricing with valuation caps.
- 7Closing is anticipated before the end of 2007, contingent upon customary conditions and approvals from U.S. and UK regulatory bodies.