CME Group buys Michael Spencer’s Nex for £3.9bn.
CME Group, the world’s largest futures exchange, has agreed to buy Michael Spencer’s Nex Group for £3.9bn in a deal that heralds a shake-up in the world’s bond and foreign exchange markets.
Last month, the CME had approached NEX, home to one of the world’s largest platforms for US Treasuries trading – BrokerTec, with a takeover offer. The move triggered speculation that there could be rival takeover bids from other players like International Exchange Group or the London Stock Exchange.
The price is at the top end of analysts’ forecasts and once completed, the deal would be the CME’s largest overseas acquisition and its biggest since it bought Nymex for $11bn in 2008. The transaction is expected to close in the second half of 2018, pending on the approval of regulators and NEX shareholders.
The deal will also mark the first time the same company owns the dominant markets for fixed income and foreign exchange futures, and their underlying securities. Nex operates some of the world’s largest currency and sovereign debt markets, and owns assets that process millions of derivatives, equities and currency deals.
The combination would put CME in pole position to potentially reform trading on the $500bn-a-day US Treasuries market – the main market for US government debt. In addition, the merger of CME’s FX futures business with Nex’s currency trading venue would drive CME’s plans to target the global FX swaps and forwards market, which trades a notional $3 trillion a day.
The Chicago exchange has plans to create the first ever central order book that directly links the spot currency market and its own FX futures market. FX derivatives have also been one of the biggest growth markets in clearing. Last year CME’s big rival LCH cleared $11 trillion in notional contracts compared to $3.2 trillion in 2016.
Once the deal is sealed, NEX CEO Michael Spencer will join the CME board of directors and remain with the combined business as a special advisor, working to drive the integration and creation of the new company.
The transaction is expected to generate cost synergies of $200m annually by the end of 2021, assuming the deal is completed this year. “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.
Spencer added, “The combination of NEX and CME will be an industry-changing transaction,” Spencer commented. “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.”