Following months of unconfirmed speculation that Nymex Holdings might be on the sale block (see NGI, June 18), the parent company of the New York Mercantile Exchange, a global energy exchange powerhouse, confirmed last month that the company has been in talks with "certain parties" with regard to a "potential business combination."
The three front-runners in the takeover talks have widely been rumored to be the CME Group, NYSE Euronext and Deutsche Boerse AG. Nymex would not confirm the identities of the interested parties.
Nymex Chairman Richard Schaeffer added that the company plans on introducing a cost savings program that would include firing 150 to 300 employees, reducing trading floor space and potentially selling the company's lower Manhattan headquarters, which the company values at approximately $500 million.
Nymex, which offers futures and options trading in energy and metals contracts and clearing services for more than 320 off-exchange energy contracts, had a market capitalization of $11.64 billion on Wednesday afternoon. Through a hybrid model of open outcry floor trading and electronic trading on CME Globex and Nymex ClearPort, the company offers crude oil, petroleum products, natural gas, coal, electricity, gold, silver, copper, aluminum, platinum group metals, emissions and soft commodities contracts for trading and clearing virtually 24 hours each day.
Nymex sale-talk can be traced all the way back to the company's initial public offering (IPO) in November 2006. "They wanted to maximize their value in order to make a killing by being bought," one Northeast broker said, adding that another reason for a sale could be the fact that Nymex does not have an in-house electronic trading platform, during a time when the switch to online transactions from traditional floor trading resembles more of an exodus than a migration.
"What I am most surprised at is the announcement that they are looking at laying off another 150 to 300 people," the broker said. "I really am wondering where they are going to find that many people [to fire] because they have already cut quite a bit of the workforce. They have already trimmed the trading floor down pretty hard. It's a shame because a lot of people I know who worked for the exchange figured it would be a pretty safe place to be until retirement. I guess it really wasn't."
The potential takeover news boosted the exchange's share price. Nymex's shares on the New York Stock Exchange closed Aug. 23 -- one day after the confirmation -- at $126.06/share, a $7.28 (6.13%) increase over the Aug. 22 close. The exchange's successful IPO in November 2006 saw share prices more than double in their first day of trade to $132.99/share (see NGI, Nov. 20, 2006).
"Since discussions have been preliminary, there can be no assurance that the company will enter into any transaction or, if the company were to engage in any transaction, regarding the timing of such a transaction or the consideration to be received in a transaction; although the chairman indicated his belief that any transaction would have to be at a meaningful premium to the company's current share price," Nymex said.
Nymex made its disclosure of a business combination after Schaeffer and CEO James Newsome talked early on Aug. 22 with institutional investors and a Deutsche Bank analyst.
Schaeffer said a potential business combination could result in cost savings of up to $250 million, as well as potential revenue synergies from better distribution in Europe and growth potential in clearing and from new products. However, he noted that since takeover talks are preliminary, the company cannot be sure of the extent of any cost savings or revenue synergies that may result from a combination.
"There can be no assurance that the company will undertake a cost savings program (and, if a program is undertaken, the timetable for implementing any such program), whether such program would involve a sale of the company's headquarters building (and, if the building is sold, the timing and proceeds of any such sale) and the value of the cost savings that may be realized," Nymex said.
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