Chicago lines up $11bn takeover of New York's Mercantile Exchange

The Chicago Mercantile Exchange, the world's largest exchange, looks set to gobble up another smaller rival, revealing it is discussing an $11.3bn (£5.7bn) takeover of the New York Mercantile Exchange (Nymex), the historic home of oil trading in the United States.

The talks come barely six months after the CME acquired its cross-town rival, the Chicago Board of Trade, sparking another round of consolidation in the world of exchanges.

The Nymex, at its open-outcry trading floor in lower Manhattan and via its parallel electronic systems, accounts for two-thirds of global trading in energy futures and options. The exchange was created by dairy merchants in 1872 as a place to trade butter and cheese, and it changed its name to the New York Mercantile Exchange a decade later.

A deal to sell itself to the CME would be another milestone in the rush to consolidate the exchange industry. As well as numerous regional tie-ups, Nasdaq is currently buying exchanges in Sweden and Philadelphia, and the New York Stock Exchange recently added the American Stock Exchange to a list of purchases that already includes continental Europe's Euronext.

The NYSE had long been rumoured to be keen to buy Nymex, but an electronic trading partnership between Nymex and the CME complicated its plans, as did the persistently high share price of the Nymex since it floated in 2006. It was the hottest flotation of that year, doubling in price on its first day's trading. InterCont-inental Exchange (ICE), the upstart electronic exchange which is eating into Nymex's market share and which even tried to gatecrash the CME-CBOT deal last year, could be a consolation prize for the NYSE, analysts said yesterday.

"I think you are going to continue to see exchange consolidation, joint ventures and smaller transactions in other parts of the world," said Dan Fannon of Jeffries. "Earnings multiples continue to be high so exchanges are going to use their shares as currency."

The CME has offered Nymex investors more than $119 a share in cash and paper. That compares with a flotation price of $59, and is an 11 per cent premium to the Nymex share price at the end of last week. The two sides have agreed to a 30-day period of exclusive talks, but they cautioned that they are at an early stage and a deal may not emerge.

An acquisition wouldplug a gap in the wide suite of products that are traded on CME exchanges. The company already majorsin futures and options based on interest rates, equityindices, currencies and agricultural commodities, and esoteric productssuch as weather futures.

A deal would also bring a windfall for the 816 firms and individual traders who own memberships at the Nymex. The CME is planning to spend up to $500m to buy out those memberships. It has promised, however, to maintain open outcry trading floors in the New York area.