Citi to sell commodity trading unit Phibro to Occidental

Citigroup will be selling its oil and gas trading unit Phibro LLC to Occidental Petroleum Corp for an undisclosed amount.

Occidental Petroleum today said it has entered into an agreement with Citi for the acquisition of Phibro and that its investment in the target company is expected to be about $250 million.

Subject to regulatory approvals, the transaction is expected to close in the fourth quarter.

The sale of Phibro comes at a time when the exorbitant compensation — running into millions of dollars — for its head Andrew Hall has come under fire. Criticism has come from various quarters saying that bailed out Citi is shelling out huge pay packets.

One of the worst hit by the financial turmoil, India-origin Vikram Pandit-led Citi has received $45 billion in fresh capital from the US government to tide over the crisis.

Regarding the deal, Citi in a statement said the purchase price would be approximately equal to the net asset value of the business.

Phibro is one of the best performing businesses of Citi and has been profitable every year since 1997.      Citi said the sale of Phibro follows an evaluation of a variety of alternatives and is consistent with the firm's core strategy of a client-centred business model.

As part of efforts to shrink its balance sheet, Citi has been selling assets worldwide.

Occidental Petroleum, in a separate statement, said that Phibro's management team, headed by Andrew Hall, and its employees would remain with the company post the deal.

"The senior management team has agreed to make a significant investment in Phibro and receive returns dependent upon the company's future performance," the company said.

The petroleum firm noted that significant portions of current and future bonuses would be deferred and retained by Phibro and paid out in future years.

"These future payouts will be adjusted to reflect Phibro's results during that period," it added.

From 1997 until the second quarter of 2009, Phibro averaged about $200 million per year in pre-tax earnings, while over the last five years Phibro's earnings averaged $371 million per year.