In much the same way CME sweet-talked Chicago Board of Trade shareholders into a merger last year, CME Group is attempting to do the same with bitter Nymex stakeholders.
CME announced a swathe of new initiatives including a share buyback program of class ‘A’ common stock of up to $1.1 billion. Also, a special dividend of $5.00 per common share will be offered following the ‘resolution’ of the Nymex transaction. These initiatives effectively sweeten the deal that CME is offering Nymex, whose shareholders have expressed dissatisfaction with the price of the deal, especially given the fall in CME’s share price since merger talks were announced in January.
Terry Duffy, CME’s group executive chairman, says: "We recognise that our successful merger with the Chicago Board of Trade and our continued growth and success will result in significant free cash flow generation that will exceed what we need to have on hand in order to continue our aggressive global growth strategy."
The original terms of the deal include exchanging 0.1323 of CME’s shares plus $36 in cash for each Nymex share. As CME’s shares are down over a third since early this year, the deal has fallen in value from $11.3 billion to about $9 billion.
The share buyback is expected to boost investor confidence and the CME share price, and the dividend effectively gives Nymex shareholders another $5.00 per share on top of the buyout price.
CME is offering up some of the spare cash it has realised since the merger with CBoT, which created around $60 million per year in operating efficiencies.
"We believe our new capital structure initiatives reflect the high operating efficiency and relatively low capital requirements inherent in our business model," says CME Group.
Jamie Parisi, CFO of CME says: "We will incur up to $4 billion of debt initially to execute both the Nymex transaction and this return of capital. We are balancing the shareholder benefits of incurring some debt with the critical role CME Group plays in global capital markets and we are, therefore, targeting a very strong investment grade credit rating."
Earlier this month, the proposed merger of CME and Nymex got unconditional clearance from the US Department of Justice as Nymex shareholders met to discuss whether they actually wanted the merger to take place. While regulatory approval brings the deal one step closer to completion, Nymex and CME shareholder approval is still needed, which poses a potential stumbling block.
At least 75% of Nymex shareholders are necessary to approve the merger. A special meeting was held on 19 June, but the meeting was inconclusive according to reports on Reuters. It was widely expected that CME would sweeten the deal to avoid upset. If approved, the deal is expected to close during the fourth quarter.