The combination will create the world’s largest exchange in the cash, over-the-counter (OTC) and regulated energy, commodity and financial markets, with benchmark products in every major asset class.
The agreement values Nymex at around $9.4 billion.
The combined company will provide global market participants access to the leading financial and agricultural exchange and the leading energy and metals exchange via CME’s electronic Globex platform.
CME Group says that it will continue to offer “multiple venues for execution” including trading floors in Chicago and New York, clearing on the NYMEX ClearPort platform. CME noted that the combined company will continue to operate the Nymex floor in downtown New York “as long as both revenue and profitability thresholds are achieved going forward.”
Under the terms of the definitive agreement, shareholders of Nymex will receive total consideration equal to 0.1323 shares of CME Group Class A common stock and $36.00 in cash for each share of Nymex common stock outstanding, or an aggregate of approximately 12.5 million shares of CME Group Class A common stock and cash of $3.4 billion.
The exact amount of the cash and stock consideration to be received by each Nymex shareholder will be determined by proration in the event that total cash elections are either greater than or less than the mandatory cash component of approximately $3.4 billion. CME Group may choose to increase the cash amount if Nymex shareholders elect to receive more than $3.4 billion in cash, under certain circumstances, it said.
As part of the transaction, Nymex is required to offer to purchase the 816 outstanding Nymex Class A memberships for consideration not to exceed $500 million in the aggregate, or approximately $612,000 per membership. The closing of the transaction will be conditioned on, among other things, at least 75 percent of the memberships being repurchased.
CME Group said that the merger is expected to create substantial value for shareholders through the realization of approximately $60 million in cost synergies and additional growth opportunities. The transaction also is expected to deliver clearing capital efficiencies related to equity holding requirements, portfolio margining and security deposits for joint clearing members.
Additional benefits will include harmonized trading and administrative technology systems, building on the existing CME Group/NYMEX exclusive electronic trading agreement.
“The Nymex board and CME board voted unanimously to put this [deal] in place,” said Nymex chairman Richard Schaeffer in a conference call with analysts this morning. “We believe it is in the best interests of all Nymex stakeholders and everyone who participates in the global commodities and derivatives industry,” he said.
"CME Group is committed to providing market users around the world with the broadest array of benchmark products, deep pools of liquidity, and the choice of trading on our electronic platform or trading floors," said CME Group Chief Executive Officer Craig Donohue. "Because energy products complement our diverse suite of product offerings, this acquisition creates immediate and long-term value for our combined company, our customers and our shareholders.
Nymex president and CEO James Newsome added that "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."
That the terms of the deal remain unchanged from original offer may surprise some market participants who expected Nymex to push for a higher valued deal.
The transaction is subject to approvals of regulators, shareholders of both companies and Nymex members, as well as the satisfaction of customary closing conditions.
In February, the US Justice Department said that financial futures markets that offer their own clearing services could be anti-competitive, which may yet prove to be an obstacle to the merger. The suggestion that exchanges should be split from their clearinghouses is a potential major challenge to the business models of both the Chicago Mercantile Exchange and the Nymex. Both Nymex and the CME have their own respective clearing capabilities.