Nymex Holdings Inc. said last week that its board of directors has approved revisions to the definitive agreement by which General Atlantic LLC will take a 10% equity stake in Nymex Holdings, the parent company of the New York Mercantile Exchange. Under the revised terms of the transaction, General Atlantic will invest $160 million for the 10% equity position in Nymex, which represents an increase of $25 million over the originally signed deal. The initial deal valued Nymex's equity at $1.35 billion post-investment, but the revised terms put the value at $1.6 billion post-investment.
The original deal was signed in mid-November (see NGI, Nov. 21, 2005). At that time, General Atlantic was to invest $135 million for a 10% equity stake in Nymex. The companies announced in November that following completion of the transaction, which includes open outcry trading protection provisions, General Atlantic would help Nymex prepare for a potential initial public offering (IPO) planned for 2006.
"We have conducted a thorough review of a wide range of strategic options and have listened carefully to our members and shareholders over the past year," said Mitchell Steinhause, chairman of Nymex. "Our revised definitive agreement underscores our belief that General Atlantic continues to be the best partner to help us make Nymex more valuable through an IPO later this year and over the long-term. The proposed investment is a solid opportunity for all of our members and shareholders, and I look forward to working with all of them to move the exchange forward."
The companies said the equity purchase will not include any trading rights for General Atlantic. Nymex said the increase in valuation is based on the strong performance the exchange has achieved in recent months, including record seat prices, record volume and a number of strategic initiatives that have positioned the exchange for continued long-term prosperity.
"We remain excited about the opportunity to invest in Nymex and form a long term partnership," said Bill Ford, president of General Atlantic. "We understand that it has been important for Nymex's members and shareholders to participate in this process. We are encouraged by the exchange's continued financial success and the new equity valuation reflects that."
General Atlantic also said it will agree to invest an additional $10 million in the exchange if Nymex:
Another revision to the original deal focuses on General Atlantic's total equity stake in the exchange. The potential maximum size of General Atlantic's equity ownership stake in Nymex has been changed from a maximum of a 10% equity stake pre-IPO and a 20% equity stake post-IPO to a maximum of a 20% equity stake for the entire five-year standstill period upon the closing of the transaction. Prior to Nymex's IPO, General Atlantic may not purchase shares from other Nymex shareholders, except only if no other shareholder wants to purchase such shares -- i.e., transferring shareholders must first offer their shares to all non-General Atlantic shareholders before offering them to General Atlantic.
Following the completion of the transaction, there will be 25 board members, including Ford, who will fill the current vacancy on the board. These 25 board members will serve until Nymex's next annual meeting, which will be held no later than May 1. At the May 1 annual meeting, the board will be reduced to 15 members. James E. Newsome, Nymex president and, upon the closing of the transaction, also the CEO of Nymex, and Ford will serve on the reduced 15-member board. The other 13 members will be elected by Nymex's shareholders at the May 1 annual meeting.
Nymex said each member of the reduced board will serve one-year terms (not the current three-year staggered terms), thereby enhancing the board's accountability to Nymex shareholders. If Nymex fails to hold its next annual meeting by May 1, which will be seven weeks after the closing of the transaction, the delay in this date will require both the approval of 75% of the total Nymex shares outstanding and General Atlantic's consent, except if the delay is due to a force majeure event.
The revised definitive agreement continues to contain provisions to support and protect Nymex's open outcry trading, including a requirement for the continued financial support for technology, marketing and research for open outcry. These 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 a 10% royalty payment based upon the electronic trading of that product. This royalty payment is limited to open outcry products for which the trading floor closes or for which 90% of the trading volume shifts to electronic trading. Trading rights owners will not be entitled to any royalty payment or trading revenue from new products that have only traded electronically, the companies said.
Nymex's board of directors also voted last week to offer side-by-side open outcry and electronic trading of its benchmark, physically settled energy futures contracts, a move that some say was necessary to compete with IntercontinentalExchange's electronic trading activity (see related story). Electronic trading during open outcry hours is expected to launch during the second quarter of 2006.
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