CME Group Tightens Grip on U.S. Futures Business
By Ros Krasny
CHICAGO (Reuters) - CME Group Inc CME.N, the world's largest derivatives exchange, tightened its grip on the U.S. market on Monday by announcing a definitive agreement to buy energy and precious metals mart NYMEX Holdings Inc NMX.N for about $9 billion.
The terms of the deal were unchanged from CME's original bid on Jan 28, but the overall price tag dropped from the original $11 billion offer due to the fall of CME's stock price
-- a decline that continued on Monday.
Each share of NYMEX will be exchanged for 0.1323 shares of CME Class A common stock and $36 in cash.
The shares of both companies fell on Monday. NYMEX shares hit their lowest since its initial public offering in November 2006. Dealers said the drop reflected disappointment that the original terms of the bid were not improved. CME plunged at one point to its lowest in more than two years.
The deal, which company officials expect will close by year end pending regulatory approval, is the latest in a wave of consolidation among U.S. and global exchanges.
It will give CME Group about 95 percent the U.S. futures and options-on-futures business.
CME Group was created in July 2007 when Chicago Mercantile Exchange Holdings bought the Chicago Board of Trade for about $12 billion.
NYMEX, the New York Mercantile Exchange, is the world's largest physical commodity futures exchange with more than 130 years of trading history.
NYMEX trades an array of energy contracts, including crude oil, gasoline, natural gas and electricity, and precious metals such as gold, silver and copper through its Comex division.
CME strengths lie in interest rates, foreign exchange, stock index and agricultural commodities such as grains and livestock.
The exchange said the addition of NYMEX would give it more exposure to lucrative over-the-counter derivatives markets.
The merger is expected to generate about $60 million in cost savings, CME said. CME said it would continue to offer multiple venues for trading, including trading floors in Chicago and New York, clearing on the NYMEX ClearPort platform and electronic trading on CME's Globex.
The combined company will continue to operate a trading floor in New York City as long as certain revenue and profits targets are met, CME said.
CME chief executive Craig Donohue told reporters at a news conference in New York that the benchmarks to keep the NYMEX floors open would be "reasonable" and "flexible," but declined to elaborate.
Donohue said clearing firms could expect to see about $25 million in annual back-office savings through the consolidation of the two exchanges.
FACE-OFF WITH DOJ
The NYMEX deal will likely face tough scrutiny from the U.S. Department of Justice given CME's huge market share.
The DOJ conducted a lengthy investigation into the CBOT deal before concluding that, within standard antitrust parameters, it had no reason to reject the deal.
But in February, the Justice Department called for a shake- up in financial futures exchanges, including an end to exchanges owning or controlling the lucrative business of clearing trades.
Donohue said CME had done its homework on the approval process.
"We have to be mindful of the process we'll go through with the DOJ. We're prepared for that, and confident we will be successful," he said.
New York Senator Charles Schumer, speaking via telephone at CME's news conference, said antitrust concerns could be tamped down by CME's sale of its gold and silver contracts to NYSE Euronext (NYX.N)(NYX.PA), announced on Friday.
The CME also has a strong competitor in energy trading, Atlanta-based IntercontinentalExchange Inc (ICE.N), which in 2007 tried to derail the CME-CBOT deal with a competing bid for the Board of Trade.
CME shares closed down 7.6 percent, or $36.85, at $449.20, with NYMEX down 11.3 percent, or $10.70, at $84.30.
(Additional reporting by Jessica Hall in Philadelphia; Editing by Andre Grenon)
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