(Adds comments from CME executive, analyst, share prices)
July 30 CME Group Inc, the world's
largest futures exchange operator, will buy derivatives broker
GFI Group Inc to expand its reach in the European
energy and global foreign exchange markets, CME said on
CME, owner of the Chicago Board of Trade and Chicago
Mercantile Exchange, said it would acquire GFI in an all-stock
deal worth $580 million and assume $240 million in outstanding
debt, for a total value of around $820 million.
Chicago-based CME will then spin off GFI's wholesale
brokerage business to a private consortium controlled by GFI
management for $165 million in cash, and the assumption of
around $63 million of unvested deferred compensation and other
liabilities, the companies said.
When all is said and done, CME will pay around $655 million
for two GFI units, called Trayport and FENICS, not including
certain tax benefits.
CME shares were down 0.3 percent at $75.29. GFI shares were
up 43.4 percent at $4.46.
For CME, "it's a nice strategic acquisition but it's small,"
said Richard Repetto, principal for Sandler O'Neill.
CME does not "have real penetration over in Europe in
energy," he added. "That's what this Trayport platform is all
Trayport provides brokers, exchanges and traders with
software, network, and hosting services that touch an estimated
85 percent of all European wholesale power and gas transactions,
said Martin Fraenkel, CME's managing director of international
Trayport will operate independently from CME, he said in an
interview. Most of Trayport's business is not cleared on
exchanges, he added, noting that new regulations are expected to
push more transactions on to exchanges.
CME's global energy complex trades 1.7 million contracts a
day and includes 500,000 contracts per day in Henry Hub, the
U.S. benchmark contract for natural gas.
"CME is completely committed to maintaining and growing
Trayport as a multi-exchange venue for users of the platform,"
Fraenkel said. "That's what clients want and that's what we will
help to grow."
FENICS provides price discovery, analytics, risk management
and connectivity services for the global over-the-counter
foreign exchange (FX) options markets.
CME, which in April launched FX futures and options on its
first overseas exchange, CME Europe, said FENICS' client base,
particularly in Asia, would complement CME's FX product
FENICS will continue to serve as the sales agent for GFI
Group's wholesale broker market data, the companies said.
CME will pay $4.55 per share in CME Class A common stock for
each GFI share, representing a 46 percent premium to GFI's
closing price on Tuesday. The deal is expected to qualify as
tax-free exchanges of equity for both parties.
CME, which is set to report second quarter earnings on
Thursday, will spin off GFI's brokerage business because the
exchange operator "does not have a strategy of acquiring broker
dealers," Fraenkel said.
The transaction needs approvals from GFI Group stockholders
and by regulators. It is expected to close in early 2015.
(Reporting by Tanya Agrawal in Bangalore and John McCrank in
New York and Tom Polansek in Chicago; Editing by Saumyadeb
Chakrabarty and Tom Brown)