CME Set To Take Over Nymex? What About NYSE?

Lot of talk on the floor of the NYSEas theChicago Mercantile Exchange has acknowledged they are in talks to buy the Nymex for about $11 billion, which would be about an 11 percent premium over the share price on Friday.

The NYSE has lusted after the Nymex for several years, as it would give them access to the derivatives business they want so badly. The CME also has a large clearinghouse (which is responsible for settling trading accounts), that is a valuable part of the business.

But most feel that the possibility of a counterbid from the NYSE seems small, since it would be expensive and dilutive and new CEO Duncan Niederauer seems to be signalling that he will be cautious on big acquisitions. The NYSE recently announced they were buying the American Stock Exchange.

Patrick Healy, CEO of Issuer Advisory Group, released the following comment to his clients:

"While many have suspected a NYSE transaction, we reiterate our long-held belief that such a combination (while strategically sound) is not financially attractive in terms of dilution. Further, through mergers that it already has under its belt, NYX has already established a beachhead in the derivatives business. Conversely, even after the CME completes the NYMEX deal (and we believe they will), the CME is not a player in the equities arena. Therein is their strategic challenge."

Who's left? This leaves the Intercontinental Exchange, which has an energy business.

By the way, there's some debate about how routine regulatory approval might be. In an industry acquisition, regulatory approval would come from the Commodity Futures Trading Commission (CFTC) and the anti-trust division of the Dept. of Justice.

We are having a good day, 7 stocks advancing for every 2 declining, not bad considering Asia down 2 percent to 7 percent. Most importantly, financials are leading, with many of the big names up 2 percent or more.

Some traders are noting that we seem to be unwinding the "go long Asia/emerging mkts and short financials" trade.

Still, the news is not particularly great. New home sales in December disappointed, falling to their lowest level since early 1995. The inventory to sales ratio rose to 9.6 months from 9.4, the highest level since 1981.

The only good news is price cuts: the median price fell 10.8% sequentially as builders likely got very aggressive with discounting into year end. This is necessary to get that inventory level down.

And the inflation news is tough. Tyson said it would raise prices substantially due to higher grain costs; food distributor Sysco says inflation will likely trend above historic levels.

Questions? Comments?