labels: M&A
$8.3 billion NYMEX acquisition strengthens world's No1 derivatives market CME news
19 August 2008

NYMEX Holdings shareholders yesterday voted to approve the CME Group's $8.3-billion takeover offer. The transaction cements the CME Group's status as the world's largest derivatives market. About 650 of 816 NYMEX members, or 80 per cent of the electorate, voted to approve the deal, NYMEX's chairman Richard Schaeffer said in a conference call.

The CME Group's chief executive, Craig Donohue, and its chairman, Terry Duffy, met with shareholders in the last two weeks to shore up support after some NYMEX members said they would reject the offer. The CME Group raised the offer twice, and last week two chief opponents - Robert Sahn and Gary Glass - dropped their complaints.

Since approval from a majority of shareholders and at least 75 per cent of NYMEX's 816 members was required for the buyout, a small number of dissenters could have scuttled the deal. Now, it is expected to close on Friday.

In heavy after-hours trading, CME shares rose to $339, up 0.8 per cent. NYMEX shares rose 1.7 per cent to $81.35.

The CME Group, which tops EUREX among derivatives exchanges, trades everything from futures on corn and Treasury debt to benchmark contracts for oil and natural gas. It was formed by the merger in 2007 of the Chicago Mercantile Exchange and the Chicago Board of Trade. NYMEX is also known as the New York Mercantile Exchange. (See: World's largest exchange is born as Chicago Board of Trade - Chicago Mercantile Exchange merge)

Adding NYMEX's dominant energy and metals contracts will broaden CME's product mix. The transaction is the largest this year among exchanges, which are racing to meet demand for lower-cost electronic trading. CME has promised millions of dollars in cost savings once the exchanges are integrated.

CME is offering $36 in cash and 0.1323 of its shares for each NYMEX share. But because CME shares have fallen some 48 per cent this year, the deal's value is down about $3.6 billion from the original price of $11.3 billion. (See: CME in talks to acquire Nymex Holdings for $11 billion)

In an effort to win over critics, CME last month increased the proposed payments to NYMEX members, slashed the "golden parachutes" being offered to NYMEX executives, and promised to maintain the New York trading floor at least until 2012.

The NYMEX members, who hold Class A shares and have the right to trade at the exchange, will also get $750,000 in cash. The original proposal offered $612,000. CME valued the transaction at $8.3 billion.

Last week, some members reacted angrily when it was revealed that the $750,000 payout would likely be taxed as "ordinary income," instead of as lower-taxed "capital gains." Sahn, who originally opposed the deal, said on Monday he expects fellow members to push for an Internal Revenue Service ruling on how to tax the payout.

Approval will pave the way for CME Group to proceed with a special dividend of about $350 million and a plan to repurchase as much as $1.1 billion of its shares.

CME also gets NYMEX's business clearing over-the-counter futures in the energy market. Together the companies will guarantee about 98 per cent of the exchange-listed futures that change hands in the US.


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$8.3 billion NYMEX acquisition strengthens world's No1 derivatives market CME