CME Makes its Move for NYMEX

Originally Published In the News January 28, 2008 12:45 PM

The Chicago Merc’s consolidation spree might soon end if they are able to close the deal to buy the NYMEX (NMX-NYSE). Was there ever a doubt this deal would eventually take place?:

CME Group Inc., the world’s largest futures exchange, is in preliminary talks to acquire Nymex Holdings Inc. for about $11.1 billion to gain the biggest energy- trading market.

CME Group, created in July by the merger of the Chicago Mercantile Exchange and the Chicago Board of Trade, would pay about $119.20 in cash and stock for every Nymex share, the companies said in a statement today. They have agreed to enter into exclusive negotiations for 30 days. Bloomberg

To the victors go the spoils, and the management team of the CME was able to go public earlier than several of the other domestic futures exchanges and garner a valuation that put them in the drivers seat.

The takeout is hardly a homerun for NYMEX’s public shareholders who have watched the stock’s valuation multiples shrink from the lofty levels the stock initially traded. The IPO was priced at $59, and opened at $134 on the first day of trading. As Barron’s noted at the time:

Nymex seat holders undoubtedly are celebrating because each class A seat holder received 90,000 Nymex shares, which were worth $12 million on Friday. Nymex seats were selling for $5 million last month, $1.75 million in early 2005 and $750,000 in 2001. Seat holders generally can sell a third of their stock in 180 days, another third in 360 days, and a final third in 540 days. Given the current Nymex valuation it wouldn’t be surprising to see sizable member sales once lockup restrictions end. Barron’s

The traders downtown might be struggling as they transition from the pit to screen based trading, but likely made a few shekels off this transaction, as we noted:

Although we are leery of chasing a stock trading at 70+ times earnings and twenty times revenue, we will save the debate over its investment merits for another day....What we would like to point out is how much money the slick oil traders in the energy pits made on the deal. 1440 Wall Street

The stock has been dead money since the IPO, but a homerun for those who got in on the deal. The details will soon be worked out, and assuming they come to terms the CME will have to execute on consolidating the Board of Trade and NYMEX. While the derivatives markets are likely to continue to grow rapidly the story could get a bit boring going forward.

Still, you have to admire the CME’s patience, as they waited until the stock swooned to make their move. But now they have to take on the InterContinental Exchange (ICE-NYSE), and we will see what the boys in Chicago are made of.

CME Holds Talks to Buy Nymex for About $11.1 Billion
Bloomberg

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