In a deal that would consolidate 97.84% of all domestic futures volume at one exchange, according to Futures Industry Association 2007 volume figures, CME Group and Nymex Holdings Inc. announced Monday morning a definitive agreement for CME Group to acquire Nymex. The terms were previously announced, Nymex shareholders would receive $36 per share plus 0.1323 shares of CME common stock for every Nymex share. As of 12:00 o’clock (CDT) today, that comes out to approximately $8.6 billion, much less than the $11 billion valuation presented last month.
The stock prices of both CME and Nymex have dropped considerably since the announcement. The transaction, pending regulatory, shareholder and membership approval, is expected to close in the fourth quarter of 2008. A date for the shareholder and member vote was not announced.
CME and Nymex will continue to operate trading floors in New York and Chicago, and CME will keep open outcry in New York as long as it meets revenue requirements. CME Group CEO Craig Donohue said during a conference call following the announcement that the Nymex floor will remain open “as long as markets maintains revenue and volume requirements,” adding that conditions to keep the floor open are stronger than for the Chicago exchanges.
“We believe it is in the best interest of all of Nymex stakeholders,” said Nymex Chairman Richard Schaeffer during the conference call. He said that having the Nymex contracts on Globex has been a “driver of volume by allowing contracts to be distributed globally.” He added that CME “was the only partner that made sense… for shareholders it will strengthen our competitiveness, for customers it brings capital efficiencies and new and innovative ways to manage risk.”
In the fourth quarter of 2007, Nymex electronic trading volume on CME Globex averaged 703,673 contracts per day, while Nymex floor-traded energy futures and options averaged 228,678 contracts per day. For fourth quarter 2007, Comex electronic trading volume on CME Globex averaged 147,017 contracts per day, while Comex metals open outcry average daily volume was 42,095. CME Group’s fourth quarter 2007 volume averaged 10.6 million contracts per day, and CME’s total quarterly volume exceeded 676 million contracts, 81% of which were traded electronically.
Donohue called the deal “the next logical step in the evolution of both our businesses.”
U.S. Senator Chuck Schumer (Dem. N.Y.), who was on the conference call, said the deal was “good news for both New York and America on a day when the markets were in turmoil.”
Schumer suggested that the sale of the former CBOT metals complex, which was announced last week, would pave the way for Department of Justice approval of the deal by taking a potential antitrust issue off of the table.
CME anticipates a pre tax cost savings of approximately $60 million annually, 50% of which will come from a reduction in administration costs.
“Both Nymex and CME Group have a proven track record of bringing new and innovative risk management products to the marketplace, and we are excited about the potential to create a viable, long-term trading environment for our combined products,” said Nymex CEO James Newsome in a press statement.
Despite some public rumbling by Nymex members regarding the valuation of Nymex, both Schaeffer and Newsome said during the call that they expected membership approval of the deal. “Education and transparency is what is important now. We are comfortable that when people get an understanding of this, they will support it,” Newsome says.
No formal roll for Schaeffer or Newsome in the combined entity was announced, though both have lucrative packages in event of a buyout.
