With CME Group Inc (CME.O: Quote, Profile, Research, Stock Buzz) set to wrap up its NYMEX Holdings Inc (NMX.N: Quote, Profile, Research, Stock Buzz) takeover on Friday, staff at the New York energy and metals market are bracing for an acceleration of job cuts NYMEX foreshadowed late last year.
CME, the world’s largest derivatives exchange, won shareholder approval this week for the acquisition, thanks in large part to a pledge of $60 million in cost savings.
The Chicago exchange has been coy on what that means for the nearly 400 staff at NYMEX, but CME Chief Executive Craig Donohue told Reuters last month he expects “head count reductions, because there will be some redundancies between the two companies.”
Diego Perfumo, analyst at Equity Research Desk, pegged the likely number of job cuts at 176, or about 45 percent of the New York workforce, based on a breakdown of CME’s projections and NYMEX’s expenses.
“I think, though, that synergies were understated,” Perfumo said. “So the 176 most likely will be higher.”
The New York Mercantile Exchange operator unveiled an “Enterprise Efficiency Plan” last year meant to drive down costs as it moved from traditional open-outcry trading on its floor to an increasingly electronic platform.
“NYMEX will reduce its current workforce by approximately 120 positions over the next five quarters, or $10 million on an annual basis, beginning immediately with 55 positions, and continuing through 2008,” the company said on November 1.
NYMEX had expected to conclude the cost cutting this year.”Fewer and fewer people have been working at the NYMEX, and that will only be accelerated by this (CME) deal,” said Ed Ditmire, analyst at Fox-Pitt Kelton.
CME spokesman Allan Schoenberg said any staff reductions would first be revealed internally, before anything is made public. He said CME has about 2,000 employees.
SAME PATTERN AS CBOT?
The NYMEX acquisition, worth about $8 billion, comes just over a year after CME bought the Chicago Board of Trade, then its largest competitor.
CME did much of its integration planning well ahead of that deal, and finished the integration process ahead of schedule. CME cut an initial 380 positions after the CBOT deal closed.
For the combined CME and CBOT, the vast majority of division heads were drawn from the CME, and the same pattern is expected when the NYMEX landscape is unveiled.
NYMEX Chairman Richard Schaeffer, CEO James Newsome, and much of the company’s senior management have agreed to step down once CME’s acquisition closes, expected later on Friday.
The demands of NYMEX members helped secure a promise from CME last month to keep the trading floor in lower Manhattan open at least until 2012, among other concessions.
Still, analysts expect New York to bear the brunt of the job cuts. They cite marketing, technology and human resources as areas ripe for trimming.
“I think you’re going to see some duplicate back-office personal no longer needed in the combined company,” said Patrick O’Shaughnessy, analyst at Raymond James and Associates. “And I would guess most of (the cuts) are going to come from the NYMEX side.”