CME Group acquires NEX Group plc

Derivatives marketplace CME Group (NASDAQ:CME) and NEX Group plc (LON:NXG) have just announced that they have reached an agreement in which CME Group will acquire NEX in a transaction valued at £10 per share, consisting of 500 pence in cash and 0.0444 CME Group shares (based on CME’s closing share price of US$158.84 on March 28, 2018 and the exchange rate of US$1.4101:£1, on March 28, 2018).

The proposed transaction has been approved unanimously by the board of directors of both companies and is expected to close, pending approvals by regulators and NEX shareholders, in the second half of 2018.

Combining NEX’s electronic FX and fixed income cash execution platforms with CME Group will improve trading technology and streamline access by reducing the number of touchpoints that clients need to trade across products. In addition, NEX’s OTC posttrade products and services complement CME Group’s derivatives clearing services.

Combining these solutions will strengthen the NEX compression, reconciliation and processing businesses. The combination will also facilitate the development of innovative post-trade services and data offerings to further enhance cost-effective trading and risk management.

Terry Duffy, CME Group

At a time when market participants are seeking ways to lower trading costs and manage risk more effectively, this acquisition will allow us to create significant value and efficiencies for our clients globally,” said CME Group Chairman and Chief Executive Officer Terry Duffy. “As one organization, we will be able to employ the complementary strengths of each company to serve a wider client base while diversifying our combined businesses across futures, cash and OTC products and post-trade services.

Michael Spencer and his senior leadership team have built a world-class organization that is at the center of capital markets. We are committed to maintaining the longstanding relationships NEX has with its clients, and exchange and clearing house partners. Building on NEX’s deep roots in Europe and Asia and CME’s strong technology platform, we will transform our international profile and broaden our distribution network in spot and futures FX products as well as cash, repo and futures products in U.S. Treasuries,” Duffy added.

Following completion of the acquisition, NEX CEO Michael Spencer will join the CME Group Board of Directors. He will remain with the combined company as a Special Adviser, working to drive the integration and continued evolution of the NEX businesses. He also will be ambassador for the combined company, working with key clients, regulators and officials in EMEA and Asia.

Michael Spencer NEX Group

Michael Spencer

Spencer commented:

The combination of NEX and CME will be an industry-changing transaction. Bringing together cash and futures products and OTC services will be unique, offering clients improved access to trading, greater financial efficiencies and highly valuable data sets. The technology and innovation opportunities will be diverse and extraordinary. Clients will be better served. CME’s decision to choose London as its European headquarters is also a signal of tremendous support for Britain’s financial services sector..

Client Benefits – The transaction enhances trading and post-trading services for clients globally:

  • Delivers streamlined access and new trading opportunities across cash, futures and OTC marketplaces.
  • Enables valuable new efficiencies and risk mitigation services through clearing and posttrade services across listed, cleared OTC and bilateral OTC marketplaces.
  • Creates timely, new fixed income opportunities as clients look to manage risk as the Fed unwinds its balance sheet and the U.S. budget deficit grows.
  • Delivers new trading opportunities in an FX marketplace experiencing strong tailwinds, including global GDP growth, the return of volatility, and the continuing electronification of FX trading globally.
  • Maintains BrokerTec clearing at FICC, with a goal to increase capital efficiencies for customers.
  • Offers improved functionality and performance, combining NEX businesses with CME Group’s proven technology infrastructure.
  • Scales and streamlines NEX’s leading compression, reconciliation and processing services.
  • Expands market data offerings.

Growth Opportunities – The transaction is strategically attractive and financially compelling:

  • Expands CME Group’s FX business beyond futures to spot products, and broadens Treasury offering to include cash products.
  • Allows CME to introduce futures to the broad NEX user base, particularly in FX trading.
  • Increases international footprint and expands sales team and relationship-based trading capabilities.
  • Offers solutions for the full post-trade value chain, and creates opportunities to develop new products and services to address the continuing impact of uncleared margin rules.
  • Adds recurring, subscription-based revenue to CME Group transaction-based revenue model.

Terms of the Transaction

  • NEX shareholders will be entitled to receive, for each NEX share: 500 pence in cash and 0.0444 shares of CME Group Class A common stock.
  • The transaction is expected to be immediately accretive to adjusted cash earnings per share, with run-rate cost synergies of $200 million annually by the end of 2021, assuming deal completion in 2018.

J.P. Morgan is acting as lead financial advisor and Barclays is acting as financial advisor to CME Group, and Skadden, Arps, Slate, Meagher & Flom LLP is acting as CME Group’s legal advisor. Evercore and Citi are acting as financial advisors to NEX, and Clifford Chance LLP is acting as NEX’s legal advisor.

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