CME to shake up bond and forex markets after buying Nex Group
Chief executive Michael Spencer to net £670m from the sale
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.
The deal was confirmed on Thursday after several weeks of talks and the price is at the top end of analysts’ forecasts. If completed, the deal would be the CME’s largest overseas acquisition and its largest since it bought Nymex for $11bn in 2008.
A 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.
The CME dominates futures trading in its home US market but has few assets overseas. The deal “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 US Treasuries”, said Terry Duffy, CME chief executive.
CME said it would pay £10 a share for Nex, structured as a cash payment of 500p and 0.0444 new CME shares per Nex share. Nex said it would recommend the deal to shareholders.
It would also represent another big payday for Mr Spencer, who will net about £670m from the deal as Nex’s largest shareholder. He will also join the CME board and serve as a corporate ambassador. Mr Spencer, one of the City’s best-known entrepreneurs and former Tory party treasurer, has ridden the changes in the City since founding Nex’s predecessor ICAP in the mid-1980s.
It began as a punchy interdealer broker start-up in the nascent global swaps market and his brokers played a critical role as intermediaries in facilitating deals between banks in the over-the-counter market. Profits soared as markets globalised.
However, he saw the market changing after the financial crisis, and in the regulatory clampdown ICAP was fined £55m for its brokers attempting to manipulate Libor. Mr Spencer earned £200m from the sale of the broking business to longtime rival, Tullett Prebon. Nex was founded at the end of 2016 to focus on electronic trading and the arcane and crucial mechanics of market plumbing.
A CME purchase would mark the first time the same company owned the dominant markets for fixed income and forex 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.
Mr Spencer described the deal as “unique” and a “signal of tremendous support for Britain’s financial services sector”.
CME said it expected to generate cost synergies of $200m by the end of 2021 and to incur a one-off cost of $285m to achieve it. This would be in addition to the £40m of costs Nex is planning in coming years. Most will fall in IT and administration, which could affect about 750 jobs at Nex.
The deal would also unite CME’s FX futures business with Nex’s currency trading venue, as the CME targets the global FX swaps and forwards market, which trades a notional $3tn a day.
Nex shareholders will also receive a final dividend for the year to March 2018, which will not exceed 7.65p per share. Nex senior executives will also receive share options they are due to receive for the same financial year. The deal is expected to close in the second half of the year.