We’ve seen the consolidation happening on the global exchanges. They are becoming larger and larger powerhouses, and some are coming under more and more scrutiny. This morning’s New York Post ran a piece titled "NYMEX Merger Deal All But Completed" with the estimated terms. The estimated terms were even listed as $36 per share in cash and 0.1323 CME shares per NMX share. This article does note "Challenges to the merger could still arise evenafter a deal is signed….. That price might not sit well with someNymex shareholders…"
What we wanted to do was put this in perspective. Frankly there are more risks here than reward if the current terms are accurate. Merger speculation has been present on NYMEX at much higher prices before. NMX closed at $96.29 yesterday, and its 52-week trading range is $86.61 to $148.00. It has lost roughly one-quarter of its post-IPO value since coming public in late-2006. CME stock closed at $516.44 (52-week range of $475.17 to $714.48), so the combined price before any dilution would generate a perceived NMX buyout price of $68.32 on the stock side and including the $36 cash offer would net out at $104.32.
The largest fear that merger speculators should have here is a regulatory blockage of a deal, and that is on top of the notion that this premium is essentially an "at the market" buyout at best. Wall Street and Main Street already saw many wondering how the CME & CBOT merger was even allowed to go through, and the argument that a "clearing monopoly" now exists is not going to go away. Even though this administration and lax regulatory environment has failed to block a single large merger over "anti-competitive pressure," it is impossible not to think this approval process could be tied up for long enough that a new administration might can the deal.
So who else is left that could actually do a deal?
The NYSE (NYSE: NYX) is already involved in acquiring the Amex, and with its recent share price weakness and a new CEO it would be very hard for the equity exchange giant to be able to jump the hurdle into the futures exchange. The NASDAQ Stock Market, Inc. (NASDAQ: NDAQ) is just way to small to make a pursuit of this size.
InterContinental Exchange, Inc. (NYSE: ICE) has been left out in the wind as its attempt to buy the CBOT lost out to the CME. "The ICE" and NYMEX are almost equally yoked as far as market caps, with the ICE being slightly higher as of Thursday. A merger between those two would perhaps face much less scrutiny from any regulators.
While there is a chance that any first offer could be raised, it sure looks like there is a real chance that this could get blocked by regulators AND by shareholders. If these "likely" terms are the real deal, we’d probably speculate elsewhere.
Jon C. Ogg
February 22, 2008