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ENA Metals Group Metals B2B JV Business Model

ENA Metals Group Metals B2B JV Business Model. Objectives. Create the leading full service metals B2B Exchange Marketplace Offer extensive line of metals Offer extensive line of financial instruments including forward markets

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ENA Metals Group Metals B2B JV Business Model

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  1. ENA Metals GroupMetals B2B JV Business Model Enron North America

  2. Objectives • Create the leading full service metals B2B Exchange Marketplace • Offer extensive line of metals • Offer extensive line of financial instruments including forward markets • Partner with industry leaders to share knowledge and create liquidity and transparency • Provide value-added services including credit facilitation, mid and back office, accounting, and logistics • Add value-added services as demanded by the customer • Create a stand alone business which can be spun-off Enron North America

  3. Enron Benefits • Develop industry credibility and expertise by partnering with industry leaders • Create equity value through development of viable intermediary • Build books in existing physical products (spot & future) • Build books in financial products • Create opportunities to cross-sell Enron products to these industry leaders • Commodity risk management • Energy outsourcing • Capital Investments • Others Enron North America

  4. Participant Benefits Consumer: • Lower search costs • Perfect information • Lower prices • Operating efficiencies • Enforceable contracts Producer: • Lower process costs • Perfect Information • Access to new customers • Operating efficiencies • Equity benefits for equity participants Enron North America

  5. Sources of Revenue • Transaction fees • Main component of site profitability • Advertising revenues • Strong source of revenue (market leader and liquidity driven) • Trading margins • Metals related products • Financial products, intermediation • Fees from value added services • Logistics • Credit • Physical swapping Enron North America

  6. Contributions • Capital • Capital for joint venture • Pooled risk capital for market making • Dedicated personnel • Contractual services to joint venture • Multiple services performed by best fulfilling party • Functional responsibilities to other partners • Information sharing, risk and profit sharing for trading books Enron North America

  7. Equity Structure (Conceptual) Enron North America

  8. Legal Structure • Create distance from original parties • Incorporate joint venture • Create professional service agreements for services to be performed • Maintain flexibility to bring additional parties to, spin-off JV • Formalize relationship between original partners • Create SPV for capital pooling and risk sharing • Isolate certain business risks from the joint venture • Partners locked up for set period of time (non-compete) • Clarify ownership of particular cash flow streams • Equal cash flow and risk sharing by equity members? Enron North America

  9. Risks/Exposure • Competition • No dominant presence in non-steel metals online • Threat of another player achieving first mover advantage • Adoption/Acceptance • Adequate liquidity not achieved • Aversion to change • Counterparty risks • Credit, performance, product • Anti-trust concerns • Leading participants controlling the market medium • Trading Risk • Manage book and trading risk across new product lines • Confidentiality / Proprietary Risk • Disclosure of Enron proprietary trading / market expertise Enron North America

  10. Expansion Opportunities • Add products as market liquidity improves • Physical and financial products in copper and aluminum • Physical and financial products in other metals • Zinc, nickel, lead, tin, iron ore • Sell equity to other key industry players • Create incentive to direct volumes through JV • Create adoption “spark” for remainder of market • Create additional liquidity • Create additional market credibility • Offer additional value-added services • Offer additional value-added services as demanded by customer Enron North America

  11. Timeline • Identify initial principals and structure TBD • Established entity TBD • Formalize business strategy TBD • Make public relations announcement(s) TBD • Deploy site TBD • Solicit additional partners TBD • Iterative developments TBD Enron North America

  12. Issues for Discussion • Structure • Legal (SPV) • Business unit ownership delineation • Trading businesses (physical & financial) • Base business (transaction fee business) • Other value added businesses (credit, etc) • Ownership (%) • Commitments & contributions • Capital • Physical product • Expertise • Personnel (senior management) • Logistics • Mid / Back office Enron North America

  13. Issues for Discussion • Legitimacy, Confidentiality & Neutrality • Confidentiality and neutrality issue • Strategy • Rollout Strategy • Public announcement timing and content disclosure • Liquidity strategy • Initial product (financial) offering • Business Strategy • Subsequent roll out timeline & strategy • Additional liquidity creation • Strategic investors (& contributions) Enron North America

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