Prudential financial analyst David M. Trone said last week that he is betting Entergy-Koch Trading LP will be bought by Merrill Lynch, which apparently is itching to get back into the energy trading business.

In an equity research note on Tuesday, Trone said the investment bank is the most likely company to end up buying the trading operation, which put itself on the auction block earlier this month (see NGI, June 14). He values the company at about $1 billion, excluding the $960 million Gulf South Pipeline system.

Merrill Lynch sold the bulk of its trading operations to Allegheny Energy in 2001, while its peers, such as Morgan Stanley and Goldman Sachs, continue to have a strong presence in the area, Trone noted. The acquisition would enable Merrill Lynch to diversify its trading revenue stream, he said.

It might at first appear that Merrill Lynch is “just chasing cycles” by getting back into the trading business, but Trone noted that the “energy trading landscape is also dramatically different” today.

Trone also said that such a purchase would be accretive to Merrill Lynch earnings immediately. He maintained his “overweight” rating on the bank with a target price set at $68. MER shares were up slightly on Wednesday to $55.01.

Entergy Koch LP is a 50-50 joint venture owned by Entergy and Koch Industries, consisting of trading operations in the United States and the United Kingdom and a natural gas pipeline system along the Gulf Coast.

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