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Nex offer a boon for shareholders

The over-the-counter clearing specialist has received a takeover bid with a generous premium
April 4, 2018

Nex (NXG) has struggled to control its costs and protect margins in its rebrand as an electronic post-trade and information specialist. It’s no wonder that Chicago-based futures exchange CME's (US:CME) £3.9bn offer – a hefty premium to its undisturbed share price – for the securities trading specialist was viewed with delight by shareholders. CME and Nex – formerly Icap – have agreed on a bid equivalent to 1,000p a share, consisting of 500p in cash and 0.0444 new CME shares. Nex shareholders would also be entitled to a final 2018 dividend of no more than 7.65p a share.

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The offer is 49 per cent higher than the share price the day before the deal was mooted. Given that premium, the pressure will be on CME's management to deliver the $200m (£142m) in annual run-rate cost synergies it believes it can squeeze out by the end of 2021. That’s in addition to the £40m in annual savings announced by Nex upon its rebrand. To achieve this target, the Chicago exchange plans to consolidate back-office and IT systems, as well as the operational support required for trading platforms and post-trade services. Chief executive Terry Duffy said that the group did not plan to sell any of Nex’s assets to meet this objective, if the sale completes.  

The combination – CME’S largest overseas transaction – would unite the US group’s foreign exchange and fixed income futures businesses, with the derivatives platforms trading the underlying securities. The boards also believe that the enlarged group will have a stronger global presence, with Nex’s more established Asian and European footprint increasing CME’s international revenue by more than a third.

Despite some initial gains following the sale of its voice broking business to Tullett Prebon, Nex’s shares had faltered during the 12 months prior to the offer – perhaps heightening its profile as a takeover target. In October, it was forced to cut profit expectations for the first half and warned that operating margins would be significantly lower than six months earlier and around half its 40 per cent target for 2020.