Tax Issues Could Affect CME-Nymex Merger

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 |  Includes: CME, NMX
by: Ron Haruni

Chicago Tribune is reporting that tax questions could interfere with the merger agreement reached March 17, 2008 — representing CME Group’s (NASDAQ:CME) $8.3 billion offer to acquire NYMEX Holdings (NMX).

With less than a few days before the August 18 deadline for NYMEX and CME Group shareholders to vote on the transaction — Nymex members seem to have objections as to how the payments from a revised offer made by the CME Group on July 18 would be classified for the IRS.

The revised agreement allows NYMEX Class A members to be charged lower fees than non-members on current NYMEX products, while also increasing the consideration payable to NYMEX Class A members from $612,000 to $750,000 per membership.

However, based on statements the CME Group filed with the Securities and Exchange Commission last Thursday, conventional income on the $750,000 payment could be taxed at a rate as high as 32%, consequently eliminating any financial gains stated in the amended terms.

This fact has led Nymex members to now ask for terms of the deal to get renegotiated, in a deal the CME Group called its “full and final offer”.

The change in Class A member rights requires the affirmative vote of the owners of 75% of the 816 Nymex Class A memberships, which currently are entitled to a share of revenues from electronic trading, a benefit they would no longer have once merger gets finalized.

The approval of these amendments is a condition to the closing of the merger.

Separately, NYMEX and CME Group have announced an agreement to extend the term for their highly successful technology partnership for an additional two years until 2018, and delay the early termination right of either party by one year.