CME Group Inc.and NYMEX Holdings, Inc. have revised the terms of their merger agreement, representing CME Group’s full and final offer to acquire NYMEX Holdings (NYMEX) and that the boards of directors of both companies and of New York Mercantile Exchange, Inc. have approved the revised agreement. The exchange ratio and cash consideration per share offered to holders of NYMEX Holdings common stock in the companies’ original agreement will remain unchanged.
The revised agreement increases the consideration payable to NYMEX Class A members from $612,000 to $750,000 per membership. Additionally, NYMEX Class A members will retain the right to use or lease their memberships for NYMEX open outcry and electronic trading purposes, the number of Class A memberships will be limited to 816 and the NYMEX seat market will bepreserved. Substantially all other rights, including the revenue sharing rights contained in Section 311(G) of the NYMEX bylaws will be replaced with the following commitments:
— Trading Floor Commitment: NYMEX will maintain a trading floor in the current NYMEX facility until 31 December 2012; or, if the occupancy agreement is terminated, a trading floor will be maintained elsewhere in New York City. Thereafter, NYMEX will maintain a trading floor in New York City as long as profitability and revenue thresholds are met. If a trading pit is closed, it will not be reopened in Chicago for at least 18 months if a majority of NYMEX Class A members oppose the move.
— Member Differentiated Pricing: For so long as CME or CBOT members retain a differentiated and lower fee than non-member customers of CME or CBOT, respectively, NYMEX will maintain differential pricing such that NYMEX Class A members are charged lower fees than non-members on current NYMEX products.
— Trading Rights Commitments: NYMEX will preserve current NYMEX rules regarding account-based trading for Class A members, as well as rules establishing that clearing member firms or member firms must hold two full Class A memberships to clear at NYMEX or receive member rates.
The change in Class A member rights will be accomplished through amendments to the certificate of incorporation and bylaws of NYMEX which require the affirmative vote of the owners of 75% of the outstanding NYMEX Class A memberships. This is a condition to the closing of the merger. Class A members will receive the specified consideration upon the closing of the merger and execution of a required release. The companies have set 18 July 2008, as the record date for shareholders and members entitled to vote at the companies’ special meetings. NYMEX shareholders and members and CME Group shareholders will vote on the transaction on 18 August 2008, subject to completing SEC review.
General Atlantic LLC, which holds an approximately 7% equity stake in NYMEX, has endorsed the revised merger agreement and has committed to support the combination of CME Group and NYMEX, including committing to vote all of its NYMEX shares in favor of the transaction. Additionally, each director on the boards of NYMEX Holdings, NYMEX and CME Group intend to vote all of their shares, and as applicable, their NYMEX seats, in favor of the merger.
NYMEX has also accepted the offer made by Chairman Richard Schaeffer, President and Chief Executive Officer James Newsome and other members of the executive management team to reduce their change in control severance benefits, which combined with the reduction of certain other merger related expenses by NYMEX, will equal $30 million in the aggregate.
The parties also say that they will extend the term for their technology partnership for an additional two years until 2018, and delayed the early termination right of either party by one year. This extension is following the NYMEX and CME shareholder vote. Upon a completion of the CME Group/NYMEX transaction, the technology partnership will no longer be in effect as the parties will utilize the CME Globex platform as the electronic trading solution for the combined company.
“CME Group and NYMEX have the potential to create tremendous value for our shareholders, customers and members, and today’s revised merger agreement makes that opportunity a reality,” says Terry Duffy, CME group executive chairman. “We remain committed to maintaining a significant presence in the NYMEX facility in New York and working with the NYMEX Class A members to achieve a seamless and successful integration.”
“We believe that the merger with CME is in the best interests of all NYMEX shareholders and Class A Members,” says Richard Schaeffer, NYMEX chairman. “CME Group remains the best partner for continuing to build the NYMEX business around the world, and NYMEX senior management has demonstrated that we are absolutely committed to delivering the benefits of this combination to our shareholders and members. We look forward to proceeding to our vote and focusing on a smooth integration so that our combined company can quickly achieve its significant growth potential.”
The transaction is subject to approvals of shareholders of both companies and of NYMEX Class A members, as well as the satisfaction of customary closing conditions. Subject to obtaining the necessary approvals, the companies expect to close the merger in the third quarter of 2008.