Following up on their announcement of the deal in September, Nymex Holdings Inc. and General Atlantic LLC said last week they have signed a definitive agreement by which General Atlantic will invest $135 million for a 10% equity stake in Nymex. Following completion of the transaction, which includes open outcry trading protection provisions, General Atlantic will help Nymex prepare for a potential initial public offering (IPO) planned for 2006.
Following the completion of the transaction, General Atlantic will not own any trading rights, which will remain with Nymex members. The original letter of intent was announced by Nymex on Sept. 20 (see NGI, Sept. 26).
"General Atlantic's minority investment is the best path forward for Nymex and all of its constituents," said Mitchell Steinhause, chairman of Nymex. "We expect this partnership to help us solidify our market-leading position and continue our ongoing transformation by improving our corporate structure, technology and governance policies. General Atlantic's extensive public company experience will enhance Nymex."
Nymex said it expects to file preliminary proxy materials with the Securities and Exchange Commission (SEC) shortly and will hold a shareholder meeting in early 2006 to approve the investment by General Atlantic. Nymex said a public offering of its common stock would extend the exchange's leadership position and its ability to pursue a full range of strategic growth opportunities.
"We look forward to working with the board and management team of Nymex as the Exchange continues to strengthen its position as the leading liquidity center for the global energy commodity futures marketplace," said Bill Ford, president of General Atlantic, who will join Nymex's board of directors upon completion of the transaction. "Led by open outcry trading, Nymex is well positioned to extend its strong franchise with new products and further international initiatives."
Under the IPO plan, General Atlantic will have a limited set of rights in the event that the offering is delayed. If there is no IPO by June 30, 2008, Nymex will pay General Atlantic a cash dividend, calculated at an annual percentage rate of 5.5% of the initial investment and payable quarterly from the date of the transaction closing. The dividend would total approximately $20 million. If there is no IPO within five years of the close of the transaction, General Atlantic may seek to redeem its shares at the original purchase price, plus accrued and unpaid dividends, and 100% of the equity interest in the exchange will return to the remaining shareholders.
Addressing reported exchange member concerns that Goldman Sachs, which has ties to General Atlantic, would push Nymex more into electronic trading and lead the exchange away from its 132-year-old method of open outcry trading (see NGI, Oct. 3), Nymex and General Atlantic jointly reiterated Tuesday that open outcry trading, supported by a sound technology capability, is fundamental to Nymex's position as the leading liquidity center in the global commodity energy futures marketplace.
First reported by the New York Post in late September, the exchange members' concerns were tied to the fact that Goldman Sachs has a sizeable electronic energy trading operation and investments in several all-electronic stock and futures exchanges.
As a result of Nymex and General Atlantic's commitment to open outcry trading, the companies said there will be provisions to support and protect Nymex's system, including a requirement for the continued financial support for technology, marketing and research for open outcry trading. The definitive agreement provisions also state that core futures and options contracts may not be eliminated without a vote of trading rights holders, as long as specified liquidity requirements are met. If the exchange ever terminates open outcry trading of a particular product, trading rights owners will receive additional payments based upon the electronic trading of that product.
Under the terms of the proposed investment by General Atlantic in Nymex:
Nymex said that following completion of the SEC review, Nymex will mail proxy materials to all of its shareholders and plan to hold a special meeting of them in early 2006 for the purpose of approving the transaction. Consummation of the transaction will require the approval of Nymex shareholders and the Commodity Futures Trading Commission (CFTC). If the approvals are gained, Nymex and General Atlantic expect to complete the proposed transaction during the first quarter of 2006.
J.P. Morgan Securities Inc. is serving as Nymex's chief financial advisor, and Skadden, Arps, Slate, Meagher & Flom LLP is providing legal counsel to Nymex related to this transaction. Paul, Weiss, Rifkind Wharton and Garrison LLP served as legal counsel to General Atlantic.
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