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CME Group Agrees to Purchase Nymex for $9.4 Billion
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CME Group Inc., the world's largest futures market, agreed to acquire Nymex Holdings Inc. for $9.4 billion to add benchmark oil and natural gas futures to the contracts it offers.
CME will give shareholders of Nymex, the biggest energy market, 0.1323 of its stock plus $36 in cash for each Nymex share they own, the companies said in a joint statement today. The offer values Nymex at $100.30 a share, or 5.2 percent above Nymex's March 14 closing price of $95.34.

The acquisition builds on a two-year partnership between the companies in which Nymex's contracts have traded on CME's Globex electronic trading platform. CME Group gains a stronghold in trading contracts that set prices on everything from oil and natural gas to U.S. Treasuries. It will also acquire Nymex's over-the-counter business, an area CME has struggled to penetrate in financial futures such as interest rates.

``Nymex and CME are a good fit,'' said Mark Williams, a finance professor at Boston University. ``Exchanges are in a commodity business and increased volume is what drives profits.''

Exchanges have announced at least $41 billion of mergers and acquisitions since the start of last year, according to Bloomberg data. NYSE Euronext, under the new leadership of Duncan Niederauer, agreed to buy the American Stock Exchange for $260 million in January.

Share Decline
The price CME is paying for Nymex dropped by more than $1 billion after both company's shares tumbled in February. The Department of Justice said in a letter to the Treasury Department that the way futures exchanges process trades may be anti- competitive, sending shares of CME and Nymex down 18 percent on Feb. 6. Nymex and CME are both down 29 percent this year.

CME fell $26.44, or 5.4 percent, to $459.61 in composite trading on the New York Stock Exchange at 9:50 a.m. Nymex dropped $6.52, or 6.8 percent, to $88.82.

Electronic trading at Nymex soared after it listed its contracts on Globex in 2006 in response to rival Intercontinental Exchange Inc.'s introduction of a competing U.S. crude oil futures contract that trades via computer. About 76 percent of Nymex's contracts traded via computer last month, compared with 16 percent in February 2006.

Nymex shareholders can elect to take cash or stock for their shares in the deal, up to a maximum of $3.4 billion in cash, the companies said today. CME may increase the total cash component if Nymex shareholders choose to receive more than the $3.4 billion, the company said. Expenses are expected to fall by about $60 million annually through technology and staff cuts.

Trading Rights
Nymex has offered to purchase 816 so-called trading rights from its holders for a maximum of $500 million, or about $612,000 each. Trading rights give the holder the authority to trade Nymex contracts or to lease that right.

The purchase would cancel an agreement reached under a restructuring of Nymex's by-laws in 2006 that promised payments to holders based on electronic trading volume. When the exchange's contracts traded 90 percent or above via computer, holders of the rights would begin receiving payments of 10 percent of the electronic revenue.

The closing of the offer is contingent on Nymex buying back at least 75 percent of the trading rights from its members, the companies said today. It also needs regulatory and antitrust approval and must be accepted by Nymex shareholders.

The payment plan was a way to entice floor traders who saw their livelihoods disappearing with the increase in electronic trading to vote for the company's restructuring before it became public in November 2006.

Previous Sale
A trading right last sold for $615,000 on March 10, according to Nymex's Web site.
CME Group was formed last year when the Chicago Mercantile Exchange bought the Chicago Board of Trade for $11.6 billion, creating the world's largest futures market.
Nymex will continue to operate and own its downtown headquarters in lower Manhattan for ``quite a while,'' Chairman Richard Schaeffer said on a conference call with analysts.

Analysts at Bank of America and Credit Suisse today suggested in notes to their clients that Nymex may fund the purchase of the trading rights through a sale of that building.
The exchanges will likely combine their clearinghouses, which act to guarantee trades against default, allowing customers such as Wall Street firms and hedge funds that have capital at both markets to consolidate and save money, CME Chairman Terrence Duffy said.

Clearing Function
``We will be looking to integrate our clearing functions,'' CME Chief Executive Officer Craig Donohue said on the conference call. A decision as to whether there will ultimately be one or two clearinghouses in New York and Chicago after the Nymex purchase will be made later, he said.

Donohue estimated that customers could save about $25 million through a combination of the two exchanges' clearinghouses.

Donohue said he is ``confident we'll be successful'' in receiving antitrust approval for the purchase from the Justice Department. The companies said the deal, including regulatory matters and shareholders votes, should be completed within six to nine months.
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