Wednesday, June 4, 2008

NYMEX Shareholder Uproar:

Shareholders of the New York Mercantile Exchange (NMX) are still in a frenzied fight over the proposed merger with the Chicago Mercantile Exchange (CME).

With CME’s stock tanking and no price protection on their original $11 billion dollar offer. The current bid for each share of Nymex is 0.1323 shares of CME and $36 cash, equating to an offer with a single digit premium-- in the $85 per share range, a 20+% decline from the January bid, once valued at around $119 per share.

Prominent member and shareholder Cataldo J. Capozza is now even considering a Carl Icahn-like move by petitioning to remove Dr. Newsome, the CEO of NYMEX. He has both a pending lawsuit against the deal and still believes NYMEX is getting a lowball offer from the CME.

After acquiring the CBOT last year, the CME is looking to diversify its trading platform to include the volatile commodities traded on the NYMEX. But according to shareholders, they still are not willing to pay the premium that NYMEX deserves. Furthermore, seat holders are far from happy with the $612,000 per seat ($500 million total) offer for the memberships.

With record highs in crude oil and an 11 handle on natural gas futures, the exchange will only continue to flourish and grow earnings, as it has done for the past few quarters. You have to believe the NYMEX members and shareholders have a case.

Take a look at the six month charts of both the NMX and the CME, respectively. They've been trading, as expected, symmetrically. Notice that the CME has taken a more dramatic percentage decline. Not only are they facing the headwinds of federal regulation, but they still DO have to shell out capital for both their acquisition of the BOT and potential acquisition [albeit at the current or higher price] for NMX. A successful acquisition of the NYMEX will clearly bring the Merc future benefits and a higher stock price- but in terms of 2008- the bottom may not be in yet.

Stay tuned. Its proxy battle time.

Note: I am long NYMEX (NMX) as of 4 Jun 2008.

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