London`s International Petroleum Exchange is in a state of turmoil after a failed bid by its board to shake up the structure of the institution.
IPE`s directors have been trying over the last few months to convert the exchange from a non-profit mutual society, owned by its members, to a commercial company.
At present, the IPE membership comprises 70 floor members, each with six voting rights, plus 55 local members, each with one vote. In all, there are 475 votes on any IPE ballot.
The members are companies-trading companies, petroleum companies, banks, institutions, and stockbrokers-and some individual traders. Their range of interests is broad, including oil, gas, minerals, and electric power.
The board feared that IPE`s constitution as a mutual society makes it slow moving and thus in danger of missing great opportunities as Europe`s energy industry is deregulated.
The board called an extraordinary general meeting of IPE members on July 30 to vote on "demutualization."
Depending on this vote being passed, the voters would then be given the option to sell 70% of IPE to bidders or to pursue a merger with the New York Mercantile Exchange.
The board had already lined up five potential interest holders in IPE as a company: BG plc, Distrigaz SA, Enron Corp., Scandinavia`s Nord Pool electric power exchange, and Scandinavian industrial conglomerate OM Gruppen.
The nature of the five bidders-mainly gas companies and electric power concerns-reflects the direction the IPE board thinks the exchange should take: broadening its business to become a truly international energy exchange.
However, the constitution of IPE has its own built-in inertia device: at least 75% of members need to vote in favor of a motion for it to be passed, a rule that effectively gives minorities the power to prevent change.
The members voted 64% in favor of demutualization and 36% against, which put further debate about outside shareholders or a Nymex merger on hold.
An IPE official said that the board was very disappointed by the vote and that a number of board members had taken this as a vote of no confidence and had resigned.
Chief Executive Lynton Jones handed in his notice. "The board begged him to stay," said the official, "but he said he would not be able to do anything as things stood."
Richard Ward, executive vice-president of business development, took over Jones` role on an interim basis. Meanwhile, IPE Chairman Lord Fraser of Carmyllie also resigned but vowed to stay on until new arrangements were in place.
In the meantime, a group of four IPE directors set up meetings with government regulator Financial Services Authority. The regulator reminded IPE of its requirement "that orderly and proper markets are maintained at all times."
IPE`s first aim is to restore market confidence, after which the new board is expected to try again for demutualization. The official said, "There is a genuine need to reform and restructure. We will lose out as markets open up if we are too slow to change."