CME Vows 'Organic' Growth Path As NYSE Bid Speculation Swirls

CME Group Inc. (CME) on Tuesday sought to quash speculation that it may make a counter bid for NYSE Euronext (NYX), though statements reiterating its focus on "organic" growth still left room for a defense of its position as the world's largest futures-exchange operator.

The planned combination of NYSE Euronext and Deutsche Boerse AG (DB1.XE) would overtake the Chicago-based company, whose own deal-making over the past five years had cemented its position as the dominant force in the U.S. with an expanding global franchise.

"We're not going to let [M&A activity] deter our focus from our core business," said Terry Duffy, executive chairman of CME, speaking to reporters in Washington, D.C., Tuesday. "We are also very mindful of the transactions that are going on around the world."

The company, which operates the Chicago Mercantile Exchange, the Chicago Board of Trade and the New York Mercantile Exchange, had earlier issued a statement that said it was committed to "organic growth opportunities" in its derivatives and index businesses.

Representatives declined to comment on "rumors or speculation."

CME was drawn into the latest round of industry consolidation by media reports suggesting it could team up with Nasdaq OMX Group Inc. (NDAQ) to break up the planned Deutsche Boerse-NYSE deal, splitting the Big Board parent's derivatives and equity operations between them.

The regulatory issues involved in any potential Nasdaq-NYSE combination led some observers to handicap any CME move in favor of a standalone bid for NYSE Euronext.

However, CME has in the past strenuously denied interest in entering the cash equities business because of its low margins and regulatory complexities.

CME Chief Executive Craig Donohue last summer told investors that the company would eschew the sort of large-scale dealmaking that vaulted CME far ahead of rivals over the past decade. CME spent about $20 billion in purchases of the CBOT and Nymex ahead of the 2008 financial crisis, but the company's value has roughly halved since then to around $19.5 billion.

The company was reported Monday to be exploring a possible counteroffer for NYSE Euronext, with Nasdaq OMX as a potential partner in such a deal. Fox Business Network reported Tuesday that the two exchanges were meeting to discuss strategy. Fox Business Network is owned by News Corp. (NWSA, NWS.AU), which also owns Dow Jones & Co., publisher of The Wall Street Journal and Dow Jones Newswires.

CME had expressed interest in acquiring Euronext before the Paris-based group was acquired by NYSE in 2007. That plan would have seen CME keeping its Liffe derivatives business and jettisoning the equities unit, according to people familiar with the situation at the time.

The yet-to-be-named Deutsche Boerse-NYSE combination would mirror CME's own dominance in interest-rate derivatives secured through the CBOT takeover, and provide the enlarged company with an opportunity to challenge its rival in the U.S. and Asia.

Responding to questions from reporters, CME's Duffy said it wasn't his place to decide whether the proposed merger of NYSE Euronext and Deutsche Boerse should pose regulatory concerns because of the huge share of the European derivatives market the combined entity would have.

"That's not for me to decide. What's for me to decide is to compete with the world," Duffy said. "Yes, they are a formidable competitor, but so are we."

CME's pledge to focus on organic growth also damped speculation of a bid for Chicago-based CBOE Holdings Inc. (CBOE), operator of the largest U.S. options exchange.

However, the new round of industry dealmaking triggered by last autumn's announcement of a planned combination of Singapore Exchange and Australia's ASX Ltd. (ASX.AU) is forcing executives across the industry to reassess their positions.

Last week, Canadian market operator TMX Group (X.T) and London Stock Exchange Group PLC (LSE.LN) agreed on their own "merger of equals."

"Like everyone else, we're watching what's going on," said Duffy.

CME shares recently were down 3.6% at $291.62.

-By Jacob Bunge, Dow Jones Newswires; 312-750-4117; jacob.bunge@dowjones.com

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