Continuing its burst of activity over the past 12 months, Nymex Holdings Inc. subsidiary The New York Mercantile Exchange Inc. (Nymex) said Wednesday it intends to team with the Montreal Exchange (MX) to form a strategic alliance that will produce a joint venture company to serve the Canadian energy industry. The strategic alliance will include Nymex purchasing a 10% stake in the Canadian financial derivatives exchange for just north of US$70 million.
Nymex said the proposed joint venture, which will be headquartered in Calgary, AB, will provide trading and clearing of exchange-traded and over-the-counter (OTC) crude oil, natural gas and electricity products with a focus on the Canadian markets.
During a conference call with reporters, MX CEO Luc Bertrand said Nymex is paying C$88 (US$75.43) per share. The Montreal Exchange has about 9.3 million privately held shares outstanding.
"We have a very simple goal. That is to bring Canada's presence in the energy trading business inline with its established presence in energy production," Bertrand said during the call. "Both Nymex and MX are focused on developing this market with the aim of closing the above gap."
Canadian producers have been interested for some time in obtaining futures contracts for their production, something Nymex Chairman Richard Schaeffer alluded to. "Canada is a major center in the global energy markets, and we intend to fill the risk management gap that currently exists with the introduction of Canadian energy contracts," he said.
MX and Nymex said Wednesday that the joint venture has a two-phase business plan. First, the partners intend to offer clearing services to participants in OTC energy markets. The focus will be on both financial and physical contracts based primarily on Canadian energy commodities. In the second phase, the joint venture intends to develop and market on-exchange futures and options contracts for the same underlying commodities. By employing the services of the two partners, the joint venture hopes to benefit from economies of scale and lower operational costs.
"We have been planning to build a joint venture to serve the Canadian energy sector and now we have found the ultimate strategic partner, Nymex," said Bertrand. "Nymex is a global leader with in-depth knowledge of energy trading and clearing. MX is a leader in developing the Canadian financial derivatives market. We believe the new company will be in a unique position to serve the market and, in Canada, Calgary is the natural location for this business."
MX offers trading in Canadian interest rate, index and equity derivatives. Clearing, settlement and risk management services are provided by an AA-rated clearinghouse, the Canadian Derivatives Clearing Corp., which is owned by MX. The exchange is also a significant owner and the technical operator of the Boston Options Exchange, a U.S. automated equity options market.
Following up on an announcement made late last year, the currently privately held MX also reported Wednesday that it hopes to list its shares publicly without an offering in March or April 2007. The exchange will apply to have its shares listed on the Toronto Stock Exchange under the ticker symbol MXX.
Not shy of making the big move, Nymex has been busy over the last year. The company's moves include:
As part of the proposed Nymex-MX alliance, Schaeffer said during Wednesday's conference call that he will join MX's board of directors. Consummation of the proposed transaction is subject to a number of conditions. Depending on when those conditions are met, closing could be as early as March 7.
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