(Bloomberg) -- Carlyle Group Inc. is in talks to sell its stake in commodity trader Traxys to the company's management, heralding a potential ownership shake-up in the small group of trading companies that handle the metals critical for the energy transition.
The talks, confirmed by people briefed on the matter, come eight years after Carlyle first invested in Traxys, a mid-sized trader that specializes in niche metals like rare earths, cobalt and tin that are increasingly in focus as the move away from fossil fuels triggers a surge in demand.
Mark Kristoff, chief executive officer of Traxys, said as well as discussing buying out Carlyle, management was also in discussions with a range of potential new backers. A spokesperson for Carlyle declined to comment.
Private equity groups typically seek to realize their investments within a decade. Carlyle joined forces with hedge fund tycoon Louis Bacon to buy a majority stake in Traxys in 2014 from a previous set of private equity owners -- Pegasus Capital Advisors, Kelso & Company and Resource Capital Funds.
“We are looking for an appropriate change in shareholdership commensurate with private equity ownership, as we have done historically,” Kristoff said. “We have received quite a bit of inbound inquiry from financial investors, be that private equity, family offices, or strategic investors that want to have a stronger exposure to the battery raw materials.”
Carlyle's potential exit from Traxys comes at a time when other trading houses are courting investments from private equity firms. Traxys's larger rival Trafigura Group recently discussed a possible investment from Blackstone Inc., though the talks ended without a deal.
Traxys was formed in 2003 as a combination of the trading units of European industrial giants Umicore and Arcelor.
In the years after Carlyle's investment, the company has expanded its business. It bought South African trader Metmar Ltd., the raw-materials trading division of U.S. steelmaker Commercial Metals Co., and set up a joint venture with Pallinghurst Group to invest in battery metals.
But it has also faced some challenges. It said in 2020 that it would phase out North American lead and zinc trading “due to the deterioration of the credit coverage for this industry.” It's in a legal dispute with the former owner of a tin asset in Russia that it seized over unpaid debts in 2020, according to a company filing, though the dispute is not expected to have a significant impact on Traxys's profit.
Kristoff said that the company was “performing extremely well.”
“We had a double digit return on equity in 2021, and are ahead of pace year-to-date in 2022,” he said.
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