The parent company of the Chicago Mercantile Exchange and the Chicago Board of Trade said today it would buy the New York Mercantile Exchange...
CHICAGO — The parent company of the Chicago Mercantile Exchange and the Chicago Board of Trade said today it would buy the New York Mercantile Exchange in a $9.4 billion cash-and-stock deal that melds the nation’s two largest futures exchanges.
CME Group agreed to pay $3.4 billion in cash and about $6 billion in stock for Nymex Holdings as part of the buyout that was first discussed earlier this year.
The combined company will continue to operate electronic and open-outcry trading platforms in both New York and Chicago, as long as the New York trading floor meets certain revenue and profit requirements, executives said.
“The floor has been very profitable and is a valued part of the history and continues to be,” said Nymex Chairman Richard Schaeffer. “We at Nymex expect to continue that profitability for a long period to come.”
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Analysts praised the deal, saying it will give CME an important foothold into the fast-growing market for energy derivatives and access to new geographic areas.
“We believe this will be a great deal for CME over the long-term, particularly given the opportunity to meaningfully improve the operational efficiencies (particularly on the top-line) at (Nymex),” Banc of America Securities analyst Christopher Allen said in a research note to investors. “This deal gives CME an almost fully rounded product set, with credit being the lone missing piece at this juncture.”
CME, the world’s largest financial exchange company, hosts trading of contracts that derive their value from an underlying commodity or event for things such as gold, oil and wheat. Investors use these contracts to shelter their investment portfolios from swings in interest rates or fluctuations in the stock market.
Nymex, which stands for New York Mercantile Exchange, specializes in trading of energy and metals contracts, and has already partnered with CME to list some contracts on CME’s electronic exchange.
“We do believe this is a great beneficial transaction for both companies and obviously we think it makes great strategic sense,” said Duffy.
The two companies said the merger will save them about $60 million before taxes, half of which will come from the reduction in administrative costs and the other half from technology savings. The transaction will turn profitable in 12 to 18 months after the deal is completed, officials said.
“We believe we will be able to grow faster and deliver better value as part of CME Group than we would have been able to do on our own,” Schaeffer said.
Today’s deal comes nine months after the former Chicago Mercantile Exchange Holdings completed its $11.9 billion buyout of CBOT Holdings after a four-month bidding war with Intercontinental Exchange to form CME Group.
Under the terms of the agreement, Chicago-based CME will pay 12.5 million shares, valued at $6 billion based on the stock’s Friday closing price of $486.05. Nymex holders will receive 0.1323 Class A shares of CME Group and $36 in cash for each share outstanding.
Priced at $100.30 per share, a five percent premium over Nymex’s closing price on Friday, the deal is valued at about $9.43 billion, based on roughly 94 million shares outstanding at Feb. 20. Shareholders of Nymex will own about 19 percent of the combined company.
CME Group Executive Chairman Terry Duffy will remain in his post along with CME Group Chief Executive Officer Craig Donohue. CME Group will add three Nymex directors to its board.
The transaction must receive regulatory and shareholder approval and is expected to close in the fourth-quarter.
Shares of CME fell $78.45, or 16.1 percent, to $407.60 in midday trading today. Shares of Nymex fell $18, or 19 percent, to $77.34.