CME Group Inc, the world's largest derivatives exchange, hopes to broaden its reach by adding the energy and precious metals mart Nymex, the companies said on Monday.

Under the terms being discussed, Chicago-based CME would pay Nymex Holdings Inc shareholders $36 in cash and 0.1323 of a CME common share for each Nymex share owned, valuing the deal at about $11 billion.

Based on CME's closing price on Friday, the preliminary offer values Nymex shares at roughly $119.22 each, an 11 percent premium to Nymex's closing share price on Friday.

A CME spokeswoman said the exchange had no further comment on the proposed deal beyond the tersely worded joint release.

The proposed move keeps up a years-long process of consolidation among U.S. financial exchanges, many of which have staged highly successful initial public offerings over the past five years.

CME Group was created in July 2007 by the merger of the Chicago Mercantile Exchange and the Chicago Board of Trade, then the numbers one and two U.S. futures marts in a deal valued at $9.3 billion.

There is massive consolidation going on in the industry. This is another great sign of that, said Michael Henry, senior executive at Accenture's Capital Markets practice in New York.

Nymex, or the New York Mercantile Exchange, is the world's largest physical commodity futures exchange with more than 130 years of trading history, and went public in November 2006.

The exchange trades an array of energy contracts, including crude oil, gasoline, natural gas and electricity, and precious metals as gold, silver and copper through its Comex division.

With Nymex in its stable, CME Group would control about 95 percent of U.S. futures and futures on options volume.

Still, Nymex's products have almost no overlap with CME's strengths in interest rates, foreign exchange, stock index and agricultural commodities.

As a result, analysts expect little pushback from the U.S. Department of Justice, which would need to approve the proposal.

The CME-CBOT deal endured a lengthy DOJ review, partly because of the overlap in the two exchange's interest rate futures products.

Michael Keeley, an attorney at Axinn, Veltrop & Harkrider LLP in New York, said he expects the CME's latest proposed deal would be approved before the Bush administration left the White House in January 2009.

CLOSER TIES

A merger of the last two major U.S. futures exchanges has been rumored since CME closed its deal to buy CBOT.

Nymex listed many of its products on CME's Globex electronic trading platform starting in June 2006, fueling expectations that a closer relationship was in the works.

CME's interest in Nymex (is) no surprise given (the) close operating partnership, said Edward Ditmire, analyst at Fox-Pitt Kelton in New York.

Keeley said the antitrust attorneys hired to shepherd the deal would probably argue that despite the huge market share at the combined exchange, the rise of electronic exchanges would reduce CME's market dominance.

Given the trend in exchanges in general, the barriers to entry to electronic trading are low, he said.

Nymex has a spirited competitor in energy derivatives, Atlanta-based Intercontinental Exchange Inc. Over-the-counter energy derivatives trading is also thriving.

Nymex shares were about up 7 percent in midday trading on the New York Stock Exchange, at $113.15, and CME Group shares were down 1.48 percent at $611.92.

CME Group said the preliminary terms would see it maintain trading floors in the New York City metropolitan, falling short of a vow to maintain the current Nymex facility in downtown Manhattan.

Futures trading on the floor has been declining, and Nymex faced some decisions about what to do about that even on its own, said Tim Evans, energy analyst at Citi Futures Perspective in New York.

(Reporting by Ros Krasny; additional reporting by Lilla Zuill, Janet McGurty and Gene Ramos in New York, Diane Bartz in Washington and Christine Stebbins in Chicago, editing by Leslie Gevirtz)

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