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Nymex Holdings Board Considers Alternative Strategies

The principals aren't talking, but rumors have been swirling in recent weeks about potential buyout offers for portions of the increasingly valuable energy trading portion of the New York Mercantile Exchange. The latest was a report circulating last Thursday that J.P. Morgan Chase & Co. was presenting a proposal to the Nymex board to set up an initial public offering for the Exchange.

An IPO has been one of the alternatives being considered for the exchange. At the beginning of August, Mitchell Steinhause, chairman of the Nymex Holdings, Inc., informed exchange members, equity owners, and staff. that the 24-member board of directors was studying "our strategic alternatives," and had talked with interested private equity firms about the possibility of them purchasing a minority interest. Two firms were allowed to conduct a three-week due diligence. Those were completed by Aug. 1. The names of the firms were not disclosed but two names which have cropped up in the rumor mill are Blackstone and Battery Ventures and General Atlantic.

In his Aug. 3 letter to exchange members, Steinhause said the board also was considering suggesting Nymex do an IPO of its own. The board is expected to develop a recommendation by the end of August, publish it shortly thereafter and hold a general shareholders and members meeting to explain the recommendation Sept. 20. Another shareholders meeting will be held later for a vote.

As prices and volatility on the oil, natural gas and coal markets have shot up in the last year, Nymex trading has increased. The exchange collects fees on each transaction, using the revenue to house and run the exchange and pay out profits to the 816 seat-holders, who also are now shareholders in Nymex Holdings. The exchange was demutualized in 2000. Seat-holders may trade on the exchange or may lease their trading rights.

The value of a seat increased from $2 million for a seat sold last October, to $2.5 million for a seat sold in June, and to between the $2.6 and $2.75 million for two seats sold on Aug. 17. Each seat represents ownership of one share of stock in Nymex holdings. Based on the value of the seats the exchange could be worth between $2 and $3 billion.

Many of the seat-holders are retired and clipping coupons or collecting yearly lease fees for the seats of some $200,000 or more. These are sometimes referred to as the "potato seats," alluding to the fact they were bought years ago when the Exchange dealt in agricultural commodities. One owner holds 14 seats.

In July Nymex announced it would "declare and distribute a significant and unprecedented special cash dividend of $81.6 million" or $100,000 per share to shareholders of record July 15, 2005. The payment was made Aug. 1. The special dividend was in a class by itself. A regular dividend of $3.6 million, or $4,411.76 per share, was paid to stockholders of record as of June 15, 2005.

In 2004 the company paid total dividends of $6,127 per share, and declared a dividend, $4,289.22 per share, to shareholders of record as of December 31, 2004. Nymex Holdings reporting net income of $27.4 million for 2004, with earnings per share of $33,538. This was up from net income in 2003 of $8.9 million and earnings per share of $10,882.Operating revenue increased to $237.4 million in 2004 from $184.2 million during the prior year.

Clearing and transaction fees increased 38% to $193.3 million in 2004 due primarily to increased trading and clearing volume. During 2004, futures and options trading and clearing volume on the Exchange was a record 169.5 million contracts, an 18% increase over the 143.9 million contracts traded and cleared in 2003. Volume submitted for clearing only through the Nymex ClearPort platform was 14.3 million contracts, a 138% increase from the 6 million in 2003.

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