The CME Group Inc. and Nymex Holdings Inc. entered an exclusive 30-day merger negotiation in late January. According to the CME Group, Nymex shareholders would get $36 in cash and 0.1323 of a share of CME Group’s common stock for each share of Nymex. Nymex would buy out 816 Nymex memberships for $500 million, or $612,000 each. In total, the deal would be worth more than $11 billion but valuation is difficult after both stocks took a large hit following the posting of the DoJ letter calling for an examination of Futures industry clearing structures.
Nymex energy contracts have been trading on the CME Globex trading platform since June 2006, and in 2007, electronic trading volume of Nymex energy and metals on Globex tripled, and now averages 757,000 contracts per day.
“It does seem to make sense from an operational point of view, given how much of the Nymex volume is being executed on Globex,” says Tim Evans, Citi Futures Perspective analyst. “Trading volumes just exploded when they went with side-by-side electronic trading; and from the Nymex perspective, that was really the blockbuster deal for the franchise. The initial public offering was nice, the merger is nice, but the real quantum step forward was trading on Globex.”
Many Nymex members are unimpressed with the performance of Nymex stock, which peaked at $151.95 on the first day of trading and has since fluttered to as low as $88.41 per share, and by extension with Nymex’s board of directors. The situation worsened when the board increased Chairman Richard Schaeffer’s bonus to $3,600,000 and President James Newsome’s bonus to $2,600,000 and added a 3x multiplier to the company’s “change in control severance plan” just weeks before the CME discussions were made public. Previously, bonuses were capped at $2 million.
“I was a Nymex shareholder for a very long time and have very few shares left. This is the deal that I always thought they should pursue,” says a former Nymex seat owner. “I am happy to trade what little Nymex shares I have – at a 55 multiple – for CME shares at a 42 multiple.”
