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NYMEX ARGUES CME BID IS TOO LOW

By
Zachery Kouwe
Published April 16, 2008, 7:34 a.m. ET

Just like they do in the rough and tumble trading pits, powerful members of the New York Mercantile Exchange are driving a hard bargain in the energy market’s $11 billion takeover by the rival Chicago Mercantile Exchange.

A group of Nymex shareholders are threatening to kill the deal if the CME doesn’t raise its price or at least try to boost its own shares, which are being used to finance the merger.

The group delivered a petition to the exchange earlier this week, signed by over 10 percent of the membership, which forces the company to hold a special meeting on June 3 so they can vent their frustrations.

The members are particularly upset over the plummeting value of the CME’s takeover bid, which has fallen by more than $2 billion, or about $18 a share, since news of the merger surfaced in January.

The Chicago trading giant formally agreed to buy Nymex on March 17 for $36 a share in cash and 0.1323 shares of CME stock for each share of Nymex.

CME shares closed yesterday at $484.49, implying a takeover offer of about $100 a share for Nymex.

“I think the price that they agreed to pay originally is fair, but now we’re getting much less for our shares through no fault of our own,” said longtime Nymex member Gary Glass.

He said he would support a deal if CME was able to get its stock price back up to around $620 a share, which would move the takeover price up to about $118 a share.

Glass also said over 300 of Nymex’s 816 total members have pledged to vote against the deal if the price isn’t increased.

Three-fourths of the membership has to vote in favor of the transaction in order for it to go through.

Sources said that, as the deal with Nymex gets closer to completion, the CME plans to announce a large stock buyback that could boost its stock to $560 or more as a way to mollify the membership.

As part of the deal, Nymex also offered to purchase 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.

Some members want the trading rights deal increased to $700 million.