Following up on its previously announced plans to go public, Nymex Holdings, parent company of New York Mercantile Exchange Inc. and the Commodity Exchange Inc. (Comex), filed with the Securities and Exchange Commission (SEC) Monday to offer an initial public offering (IPO) of its common stock. In its prospectus, Nymex also outlined the potential pitfalls of simultaneously operating side-by-side electronic and open outcry pit trading.
Under the planned IPO, Nymex seeks to raise up to $250 million and intends to list its stock on the New York Stock Exchange under the symbol “NMX.”
“The board of directors believes that an initial public offering will enable Nymex to obtain additional capital, facilitate Nymex’s future access to public equity markets and provide increased flexibility in a marketplace in which a number of Nymex’s current and potential competitors are or will be publicly held companies,” Nymex said in the filing. “In addition, an initial public offering will broaden Nymex’s ownership to include public investors and significantly increase the liquidity of its stock, which the board of directors believes will help enhance value for Nymex’s stockholders.”
Nymex’s IPO will help it continue to compete with its chief exchange rival, Atlanta, GA-based IntercontinentalExchange, which held a successful IPO last fall (see Daily GPI, Nov. 17, 2005).
Nymex had been contemplating whether or not to hold an IPO for the last year (see Daily GPI, Aug. 4, 2005). In March, Nymex Holdings closed on a deal by which General Atlantic LLC invested $160 million for a 10% equity stake in Nymex Holdings (see Daily GPI, March 14). Under that deal, General Atlantic agreed to help Nymex launch an IPO.
Nymex said that if the IPO is consummated by Dec. 31 at a price which values Nymex at $2 billion or more, General Atlantic will be required to pay an additional $10 million to Nymex without receiving any additional shares of preferred or common stock. If that occurs, Nymex plans to distribute that additional $10 million as a special dividend to the company’s stockholders of record on March 13, the last business day before the closing of the transaction with General Atlantic.
“In conjunction with the proposed long-term incentive plan, the board of directors believes the initial public offering will assist Nymex to attract and retain highly qualified management and better align the incentives of our employees with those of Nymex,” Nymex Chairman Richard Schaeffer and CEO James Newsome, said in a letter to private stockholders.
Nymex added that in addition to the shares of common stock to be sold in the offering by Nymex, additional shares may be included by existing stockholders who will be afforded the opportunity to sell in the offering. The company’s New York Mercantile Exchange Inc. subsidiary trades primarily energy futures and options contracts while the Comex subsidiary trades metal futures and options contracts.
“The timing of the initial public offering is dependent upon several factors, including market conditions, regulatory review and approval, as well as Nymex stockholder approval,” the company said. “We intend to use the net proceeds from this offering for general corporate purposes, capital expenditures and working capital. We will pay $10 million of the net proceeds from this offering to the owners of Comex Division memberships, as required by the Comex 1994 merger agreement.”
Competition between ICE and Nymex has been heating up over the past years as ICE’s electronic energy trading has taken off (see Daily GPI, Feb. 16). Coming a little late to the electronic game, Nymex last month launched side-by-side trading of Nymex Division energy futures contracts on CME Globex, the electronic trading platform of the Chicago Mercantile Exchange (CME). Nymex said the deal would bring access to electronic trading of Nymex products “virtually 24 hours a day” on the CME Globex electronic trading platform. During the initial phase of the launch, Nymex is only offering cash-settled energy futures contracts for all listed months.
Some market participants speculate that Nymex’s move to 24-hour electronic trading could mark the beginning of the end for open outcry pit trading, which the company vowed to protect earlier this year. In March, General Atlantic’s investment agreement in Nymex contained provisions to support and protect open outcry trading, including a requirement for the continued financial support for technology, marketing and research for open outcry (see Daily GPI, March 14).
However, side-by-side trading could prove more difficult and expensive than first thought, which Nymex even alluded to in its prospectus. “In response to the increasing acceptance of electronic trading, and to maintain and enhance our competitive position in our futures business, we recently began offering electronic trading side-by-side with our open-outcry trading,” Nymex said in its prospectus. “We cannot assure you that the market will accept our side-by-side trading, or that we will be able to maintain our market share and liquidity in our products.
“Our decision to offer side-by-side trading could cause our customers, including those currently trading through our open-outcry trading floor, to alter their trading practices and could result in a loss of customers to competing exchanges. Declining trading volumes on our trading floor may make our futures markets less liquid. As a result, our total revenues may be lower than if we operated only electronic trading or only open-outcry trading platforms. Over time, this decision may prove to be ineffective and costly to us and could ultimately adversely affect our profitability and competitive position,” the company said.
Nymex said the joint book-running managers of the IPO are JPMorgan and Merrill Lynch & Co. The co-managers are Bank of America Securities LLC., Citigroup, Lehman Brothers and Sandler O’Neill + Partners, LP.
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