Nymex to Weigh Initial Public Offering Against Sale of Stake 2005-08-17 14:52 (New York) By Matthew Leising Aug. 17 (Bloomberg) -- The New York Mercantile Exchange, the world's biggest energy market, in considering a plan sell shares to the public after receiving a proposal from three buyout firms to acquire a 20 percent stake for as much as $240 million, according to people familiar with the situation. Bankers at JPMorgan Chase & Co. tomorrow will propose that the 25-member Nymex board consider selling stock. The exchange, where benchmark futures contracts in crude oil and natural gas trade, earlier this week got offers from Blackstone Group LP, Battery Ventures and General Atlantic LLC, the people said. Selling part of its business may enable each of Nymex's 816 members, known as seat holders, to receive a payment of about $300,000, based the bid from the buyout group. An IPO would allow members to profit should shares increase. The Chicago Mercantile Exchange sold stock to the public in 2002, and its share price has risen more than sevenfold. The Chicago Board of Trade and the Intercontinental Exchange Inc. also plan share sales. ``Exchanges are hot property right now,'' said Craig Pirrong, a professor of finance at the University of Houston. ``This is probably a pretty favorable time for them to go public.'' Futures exchanges have become attractive investments as trading ballooned. Futures and options based on at least $1,144 trillion of assets were bought or sold in 2004, 31 percent more than in 2003, according to data from the Bank for International Settlements. Selling Shares Selling a stake or going public would end the Nymex's traditional form of ownership, which is based on a limited number of seats. The payoff for seat holders might be huge. The New York Stock Exchange said in April it would buy Archipelago Holdings Inc. before becoming a public, for-profit company. Seat prices on the NYSE have doubled since the Archipelago deal was announced. Shares in the Nasdaq Stock Market Inc., which have been publicly traded since June 2002, have almost quadrupled in the past year. The Philadelphia Stock Exchange yesterday said investment banks Morgan Stanley, Citigroup Inc., UBS AG and Credit Suisse First Boston agreed to invest almost $20 million to gain lower trading costs. A seat on the Nymex sold for $2.5 million on June 24, valuing the entire exchange at just over $2 billion. Seat prices have almost tripled from $875,000 in 2002 as oil costs climbed to records. The exchange reported record one-day volume of 1.05 million transactions on Aug. 12. It paid a special dividend of $100,000 to members the week of Aug. 1. Letter to Members Nymex Chairman Mitchell Steinhause said in a June 7 letter to shareholders that selling a stake or conducting an initial share sale were options the board was considering to grow. The board may also opt to take no action, the letter said. Nymex spokeswoman Anu Ahluwalia, Blackstone spokesman John Ford, Pat Hedley, senior vice president of General Atlantic and Battery Ventures spokeswoman Karen Bommart declined to comment. JPMorgan spokesman Adam Castellani didn't return calls. ``It's quite possible that the investment bankers and institutional investors they're dealing with are saying `before we would invest in your company in an IPO, we'd want to see a year or two of your business being managed in a more strategic, global way,''' said Bruce Weber, an associate professor at the London Business School. Blackstone and Battery Ventures are in talks with Greenwich, Connecticut-based General Atlantic to make a combined bid, according to people familiar with the talks. Blackstone and Battery on Aug. 15 presented an offer of $200 million for a 20 percent stake. General Atlantic made a rival bid of $240 million. Competing Bids The buyout proposals include payouts to members, not to the exchange, according to a seat holder who asked not to be named. Details of the offers have not been made public. Trading rights would still be fully held by members. ``I'm a little bit mystified'' by the possible sale of a 20 percent stake, said Robert Webb, a professor of finance at the University of Virginia. ``They are not in a cash bind.'' The proposal from New York-based Blackstone and Battery, based in Wellesley, Massachusetts, includes shrinking the board from 25 to about 13 with one representative from each firm, according to someone familiar with the deal. The offer also includes a provision to take Nymex public within three years. ``The additional interest from Blackstone and General Atlantic is another indication that the time is now'' for a public stock offering, Pirrong said. Trading in Dubai The Nymex has its origins in the 1872 creation of the Butter and Cheese Exchange of New York. The exchange traded two principle commodities, potatoes and platinum, until 1976, when a default in the potato contract led to a crisis. To stay afloat, the exchange created energy futures, including a heating oil contract in 1978 and crude oil in 1983. Nymex is awaiting approval from British regulators to open a trading floor in London to compete with the International Petroleum Exchange, a subsidiary of the Intercontinental Exchange. The IPE switched to all electronic trading earlier this year and has seen its trading volume double since then. In June, Nymex announced it would open a trading floor next year in Dubai, which would be the Middle East's first oil futures exchange. Earlier this month, Iran, holder of the second-largest oil and gas reserves, said it would open an exchange to compete with Nymex's Dubai exchange. Nymex ``can't stand still'' in the face of such global competition, Weber said. Trading in London ``has to go well and be successful for Nymex to have legs to stand on in the future,'' he said. ``A year or two down the road it could be a very attractive stock to get into.'' --With reporting by Ann Saphir in Chicago.Editor: Banker, Merz Story illustration: For news on exchanges, see {NI EXC }. To graph Nymex crude oil futures over the past year, see {CL1 GPO D }. For more oil stories, see {OTOP }. To contact the reporter on this story: Matthew Leising in New York at (1) (212) 617-1151 or mleising@bloomberg.net. To contact the editor responsible for this story: Bill Banker at (1) (212) 617-2313 or bbanker@bloomberg.net. [TAGINFO] 78948Z US CN ICE US CN 17757Z US CN NI NRG NI CMD NI OIL NI GAS NI CRUDE NI OILPROD NI EXC NI NYMEX NI US NI MNA NI SCR NI DRV NI FUTURES NI GASMARKET NI OILMARKET #<214719.12604.96># #<228738.27849.25># -0- Aug/17/2005 18:52 GMT