NEW YORK Occidental Petroleum Corp (OXY.N), an oil and gas exploration and production company, said on Friday it agreed to buy Citigroup Inc's (C.N) controversial commodities trading unit Phibro for roughly its net asset value.
Occidental said its net investment in Phibro is expected to be about $250 million.
Phibro's management team, headed by Andrew Hall, and its employees will remain with the company after closing, which is expected by year end.
Citigroup shares were down a little less than one percent in early morning trading on the New York Stock Exchange, while Occidental Petroleum shares were little changed.
The following is reaction from industry analysts and investors:
TOM BENTZ, SENIOR COMMODITY ANALYST, BNP PARIBAS COMMODITY FUTURES, INC, NEW YORK, NY
"I think most people expected it to happen at some point. Andy Hall is due a huge payout and with Citigroup now under government scrutiny right now, it was going to be difficult to go forward with Phibro. I'm sure Phibro wanted out. I think it works out best for all parties to part ways."
ANTON SCHUTZ, PRESIDENT, MENDON CAPITAL, ROCHESTER, NEW YORK:
"It's sad that it has to happen. They're selling the goose that laid the golden egg, and it's to appease regulators. The U.S. owns 33 percent of Citi, so why are they giving away earnings over this insane compensation policy? I'm angry about this issue. It wastes a lot of people's time.
"This is pure optics. It's bananas."
PHIL FLYNN, ANALYST WITH PFGBEST RESEARCH IN CHICAGO
"Citigroup had it on the block and I think Occidental got it at a pretty good price. Of course, everything in the industry is so beaten up because of the slowdown in demand.
"I think this is probably good for both parties. Citi didn't want it, and I think Occidental is going to be in the market for some good traders.
"I think Occidental is picking up some pretty good tailwind. Obviously, when you to pick up a huge trading unit like that, with something like $2 billion in earnings, you are going to have a good trading side and a good cash side.
It definitely makes them one of the premiere players in the country when it comes to energy. They have been very aggressive lately, on the and I think this is going to be a wise move for them."
STEPHEN SCHORK, EDITOR, THE SCHORK REPORT, VILLANOVA, PENNSYLVANIA:
"Given Andy Hall's whole pay package I don't think it was a shock that it (Phibro) was sold ... given that Citi legitimately owed the money.
"I think it could be a good thing. Andy Hall was owed this money so it was a sticky situation, perhaps this works out the best for all parties.
"Given the particulars of the deal that the money was earned and owed, it is not surprise. Citi is still on the government dole."
MICHAEL HOLLAND, PRESIDENT OF HOLLAND & CO IN NEW YORK
"It eliminates future potential embarrassments for compensation issues.
"(Andrew Hall) is one of a handful of people who can make enormous amounts of money, particularly trading in the energy area.
"Political correctness in 2009, 2010 clearly works against the huge payoffs that someone like Phibro can do. They earn enormous amounts of money when they bet correctly, and the people who make those bets are paid enormous amounts of money as well and in this regulatory environment those numbers are not a good thing for someone like Vikram Pandit to have to pay.
"When the government is an owner and Congress and regulators are looking over his shoulder when he writes a check, then he has to be trembling if he writes a $100 million check."
JON FISHER, PORTFOLIO MANAGER, FIFTH THIRD ASSET MANAGEMENT IN MINNEAPOLIS
"The rumor circuit here over the last few weeks had made it pretty clear that they were going to divest at least half to all of it... they're getting rid of all of it, so they got what they thought is fair value for it."
"As long as the government owns a third of the company, compensation is a very sensitive issue there...they have to stay out of the headlines on that sort of stuff, they were forced to do something about it."
"Anything and everything is probably for sale for the right price (at Citigroup). They're looking to raise as much capital to get away from the government as quickly as possible and at the same time trying to remain somewhat competitive. I think their U.S. reputation is damaged pretty severely, internationally from a brand-name standpoint they seem to have held up fairly well, so I think the biggest problem for them is here in the U.S. If I were them, I'd try and leverage whatever current strengths they have on their international businesses and try and minimize their exposure here in the U.S. That seems to be what they're doing. Stay institutional in the U.S., de-emphasize retail and consumer, and maintain as much international presence as possible -- that appears to be the strategy."
(Reporting by Elinor Comlay, Juan Lagorio, Haitham Haddadin, Matthew Robinson, Rebekah Kebede and Dan Wilchins)