CME Swoops for U.K.'s NEX in $5.4 Billion Deal -- 2nd Update
29 March 2018 - 7:28PM
Dow Jones News
By Alexander Osipovich
CME Group Inc. has agreed to buy U.K. financial-technology
company NEX Group PLC for about $5.4 billion, a deal that would put
the Chicago futures-exchange giant in a commanding position in the
vast market for U.S. government debt.
The two companies said in a statement Thursday they had agreed
on a deal that values NEX at GBP10 ($14.08) a share. Pending
approvals by regulators and NEX shareholders, the deal is expected
to be completed in the second half of 2018.
Earlier this month, the companies confirmed that CME had made a
preliminary takeover approach to NEX. The news set off speculation
that other bidders could emerge for NEX, such as Intercontinental
Exchange Inc., owner of the New York Stock Exchange, or London
Stock Exchange Group PLC. It also triggered a surge in NEX's stock
price, which is up 45% since reports of the talks emerged on March
15.
NEX owns the biggest electronic platform for U.S. Treasury bonds
trading, called BrokerTec, while CME dominates the market for
interest-rate futures linked to U.S. government bond prices.
Combining the two would put CME in a powerful position, as it would
control the plumbing that underpins both Treasury futures and a
swath of the underlying "cash" market.
"We believe combining the underlying cash securities with the
trading of the listed futures would be a first in the exchange
industry and...would set a unique precedent," Rich Repetto, an
analyst at Sandler O'Neill + Partners, said in March 19 research
note about the deal.
That could bring greater efficiencies to bond trading.
Currently, Wall Street firms active in both cash Treasurys and
interest-rate futures need to post cash to back their trades in two
separate places. Bringing BrokerTec and CME's futures under the
same roof could lead to one unified clearing system for both kinds
of trades, freeing up cash that traders could use for other
purposes.
U.S. government bonds are the world's biggest debt market, with
some $14.5 trillion in Treasury securities outstanding. About $535
billion of Treasurys traded each day on average in the week ended
March 14, according to Federal Reserve data.
CME Chief Executive Terry Duffy said the deal would "create
significant value and efficiencies." The company is targeting
annual cost savings of $200 million by the end of 2021, and expects
to generate new sources of revenue through accessing NEX's
customers.
If completed, such a deal would likely be the biggest
acquisition for CME since 2008, when it acquired the New York
Mercantile Exchange for about $10 billion. That deal helped cement
CME's status as the world's largest exchange operator, with markets
running the gamut from wheat to gold to crude oil futures.
The firm, whose roots date back to the mid-19th century, has
been periodically criticized for exerting its dominance over the
markets to increase fees and stifle competition.
Besides BrokerTec, NEX runs major electronic markets for
foreign-exchange trading and owns technology used to process
derivatives trades. Led by Chief Executive Michael Spencer, it
formerly was known as ICAP PLC. After the deal's completion, Mr.
Spencer, who described the deal as "industry changing," will join
CME's board.
For years, ICAP was the largest player in interdealer brokerage,
the business of brokering deals in complex derivatives products
between banks, often over the phone. But in 2016, ICAP sold its
brokerage business to rival Tullett Prebon to focus on electronic
trading and financial technology and rebranded itself as NEX.
Mr. Spencer, who founded the forerunner of ICAP in 1986, became
one of Britain's richest men with the expansion of the derivatives
markets. A well-known entrepreneur in the City of London, he was
the former treasurer of Britain's Conservative Party.
As part of the deal, CME will choose London as its European
headquarters.
--Daniel Kruger and Ben Dummett contributed to this article.
Write to Alexander Osipovich at
alexander.osipovich@dowjones.com
(END) Dow Jones Newswires
March 29, 2018 04:13 ET (08:13 GMT)
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