How Exchange Bigwig Duffy Returned to Deal Making With Cross-Atlantic Bid
30 March 2018 - 8:48AM
Dow Jones News
By Alexander Osipovich and Philip Georgiadis
Terrence Duffy spearheaded a series of deals that turned CME
Group Inc. into the world's biggest exchange operator. On Thursday,
the chairman and chief executive showed he's still in the game with
a $5.4-billion agreement to acquire the U.K.'s NEX Group PLC.
The deal is poised to strengthen CME's dominance in the exchange
business, which has become increasingly consolidated in recent
years. The company's market capitalization is $53.7 billion, while
its next-biggest rival, Intercontinental Exchange Inc., is worth
$41.7 billion.
The NEX acquisition is expected to be completed in the second
half of 2018, subject to approval by regulators and NEX
shareholders, the two companies said.
In an interview, Mr. Duffy, 59, said the deal took shape during
a series of lunches and dinners with NEX Group Chief Executive
Michael Spencer in New York restaurants, lubricated by French
wine.
"A lot of the discussions happened over a nice glass of red,"
Mr. Duffy said, adding that he had let Mr. Spencer -- one of
Britain's richest men and a famed bon vivant who has invested in
fine-wine businesses -- choose the bottle.
"Me being from the South Side of Chicago, I have no idea what it
is and I just drink it," Mr. Duffy said. A spokeswoman for NEX
Group declined to comment.
A former floor trader, Mr. Duffy used political savvy to rise to
the top of the Chicago Mercantile Exchange, which became a publicly
traded company in 2002. As chairman, he oversaw tie-ups with
crosstown rival the Chicago Board of Trade, the New York Mercantile
Exchange and the Kansas City Board of Trade. Those deals turned CME
into an exchange giant with markets ranging from energy to wheat to
gold.
The firm ruffled feathers along the way. CME faces a
long-running antitrust lawsuit, which was filed nearly 15 years ago
and is set to go to trial in June, from a subsidiary of Germany's
Eurex exchange. Eurex contends that its effort to break into U.S.
Treasury futures in 2003 was foiled by collusion between CME and
CBOT. CME denies the allegations.
Buying NEX will make CME a critical player in the trading of
U.S. government debt -- the world's biggest bond market, with $14.5
trillion of Treasury securities outstanding. NEX owns the largest
electronic-trading platform for Treasurys, BrokerTec, where an
average of $143 billion is traded daily, according to the NEX
website.
That complements CME's heavily traded U.S. interest-rate
futures, a market in which CME enjoys an effective monopoly. The
firm cemented that position through a previous deal led by Mr.
Duffy, the 2007 merger of CME and CBOT.
Mr. Spencer stands to make hundreds of millions of dollars from
the sale. He told reporters on Thursday that he would become a
"large and happy shareholder" in CME under the terms of the
cash-and-stock deal. He will join the CME board and remain with the
company as an adviser, the companies said.
The 62-year-old Mr. Spencer is one of the City of London's most
high-profile financiers, and has built himself a fortune and
significant political influence out of the expansion of the
derivatives markets over the past 35 years.
In the 1980s, having been fired from two previous jobs in
finance, he pulled together $60,000 with three partners to make a
play on the growing demand for brokers to help banks trade complex
derivatives products.
The company he founded, ICAP PLC, became one of the world's
biggest players in the over-the-counter derivatives markets, built
on a core business of brokering trades by telephone. But in 2016,
faced with technological shifts in the markets, ICAP sold its
voice-brokering unit to rival Tullett Prebon PLC. The remainder of
ICAP rebranded itself as NEX Group and refocused on electronic
trading.
Mr. Spencer was a prominent backer of the U.K.'s Conservative
Party under its previous leader, former Prime Minister David
Cameron, and was the party's treasurer between 2006 and 2010.
He hasn't shunned the limelight throughout his career. ICAP's
charity days became an iconic feature of the City of London's
calendar, with celebrities from Prince Harry to singer Rod Stewart
descending on the brokers' floor to man the phones and raise money
for charity, surrounded by newspaper photographers and traders in
eclectic costumes.
The events have raised nearly GBP135 million ($189 million) to
date and helped turn ICAP into one of the best-known names in the
City, despite the firm's often barely understood role in the
plumbing of financial markets.
(END) Dow Jones Newswires
March 29, 2018 17:33 ET (21:33 GMT)
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