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CME, Nymex 'Final' Merger Deal Set for August Vote

CME Group and Nymex Holdings reported Friday that their proposed merger is still proceeding with the agreement of both companies' boards of directors on a revised merger agreement, which CME calls its "full and final offer."

Among other things, the revised deal will boost the consideration payable to Nymex Class A members and guarantee the operation of a trading floor in New York City through 2012 as long as certain thresholds are met. The companies also extended their technology agreement under which Nymex contracts are listed on the CME Globex electronic platform.

The multi-billion dollar merger of CME Group's Chicago Mercantile Exchange and Nymex Holdings' New York Mercantile Exchange is expected to provide market participants access to the "leading financial and agricultural exchange" and the "leading energy and metals exchange" in a regulated, transparent marketplace distributed around the world through the enhanced speed and capacity of the CME Globex electronic platform, according to the companies (see NGI, March 24).

The companies have set July 18 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 Aug. 18, subject to completing Securities and Exchange Commission review.

Under the revised agreement, the exchange ratio and cash consideration per share offered to holders of Nymex common stock in the companies' original agreement will remain unchanged. However, 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 be preserved. Substantially all other rights, including the revenue sharing rights within the Nymex bylaws will be eliminated and replaced with the following commitments:

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. The approval of these amendments 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, according to the companies.

General Atlantic LLC, which holds an approximately 7% equity stake in Nymex, has endorsed the revised 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 has indicated an intent to vote all of their shares, and as applicable, their Nymex seats, in favor of the merger.

"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," said CME Group Executive Chairman Terry Duffy. "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."

The companies also said Nymex has accepted the offer made by Nymex Chairman Richard Schaeffer, CEO 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.

"We believe that the merger with CME is in the best interests of all Nymex shareholders and Class A Members," said Schaeffer. "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."

Separately, CME and Nymex announced that they have entered into an agreement to extend the term for their technology partnership under which Nymex contracts are traded on CME Globex for an additional two years until 2018, and delayed the early termination right of either party by one year. This extension is effective following the Nymex and CME shareholder vote, and will be terminated if the companies merge.

"We believe the additional consideration and commitments offered to Nymex Class A members are warranted to compensate Class A members for the value of the rights they are giving up, which is essential to the successful integration of Nymex into CME Group, while also solidifying Class A members' commitment as users of the exchange in a way that should benefit all of our shareholders," said CME Group CEO Craig Donohue. "As we look to further expand our business and generate efficiencies for all stakeholders, we are committed to completing this transaction and creating $60 million in cost synergies for shareholders. This transaction will also produce millions of dollars in savings for our clearing firms and additional efficiencies for customers, will further diversify our revenues going forward and better position our combined company to compete globally in all asset classes."

Merger talks, which began in late January, reported the deal would likely be an $11 billion acquisition (see NGI, Feb. 4). The value of the deal and both companies' stock prices took a big hit in February as a result of a Department of Justice finding that financial futures exchanges that also act as clearinghouses are barriers to competition (see NGI, Feb. 11).

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