Man Group Will Buy 70% of Eurex Stake in U.S. Unit
July 27 (Bloomberg) -- Man Group Plc, the world's largest publicly traded hedge-fund company, agreed to buy a 70 percent stake in Eurex AG's failed U.S. futures unit for $23.2 million in cash as it seeks a bigger share of the global futures market.
Man Group also agreed to contribute $35 million in capital to the venture to help create new projects and hire more staff, the London-based company said in a statement today. Deutsche Boerse AG and SWX Swiss Exchange, which co-own Eurex AG, will continue to operate the exchange's technology platform.
Frankfurt-based Eurex, the world's largest futures exchange, created a U.S. unit in 2004 to compete with the Chicago Board of Trade in the $4.2 trillion-a-day market for Treasury futures. The unit only garnered a 1 percent share of that market, and it later made little headway in challenging the Chicago Mercantile Exchange in sales of currency futures.
Man Group, which is already the fourth-largest U.S. futures broker, said it will succeed where Eurex failed because it will offer new derivatives products for hedge funds and retail investors instead of competing with established exchanges.
``The idea is not a bad one,'' said Benn Steil, director of international economics at the Council on Foreign Relations in New York. ``Hedge funds know what they want so there is benefit for Man in being able to give them that easily.''
Kevin Davis, chief executive officer of Man Group's brokerage division, said the Chicago-based U.S. unit is ``in active conversations right now with hedge funds'' and expects to list its new products in the first quarter of 2007.
The new venture will also allow ``any credible financial institution'' to list products they develop and keep most of the profits for themselves, Davis said on a conference call today.
Profitability Outlook
Davis will be chairman of the new company, which will formally be called U.S. Futures Exchange. Satish Nandapurkar, the CEO of Eurex US, will retain the title with the new venture.
U.S. Futures Exchange will seek to reach profitability within two years of completing the acquisition, Davis said.
Man Group plans to eventually reduce its stake in the venture to less than 50 percent by offering stock to hedge funds, banks and other investors, the company said.
Shares of Man Group rose 44 pence, or 1.8 percent, to 2,470 pence in London today. The stock is up about 29 percent so far this year.
Failed Venture
Futures are agreements to buy or sell assets at a set date and price that investors use to bet on or guard against fluctuations in interest-rates and the prices of commodities, bonds or other assets.
Former Eurex CEO Rudolf Ferscha stepped down at the end of last year after struggling to lure enough customers for the U.S. unit's Treasury futures away from the Chicago Board of Trade, which eliminated member trading fees to fend off Eurex.
The unit also failed to win customers in stock-index and currency futures contracts.
``We're not going to adopt the same strategic approach of Eurex US, the one that Rudy Ferscha was part of,'' Davis said today. ``We do not intend to try and cannibalize existing products from other exchanges.''
The new U.S. Futures Exchange won't list existing Eurex products such as futures on German government bonds, said Andreas Preuss, the new chief executive of Eurex said on the conference call.
The Chicago Mercantile Exchange `welcomes the competition,'' exchange spokeswoman Mary Haffenberg said. ``We will continue to execute our global growth strategy.''
Man Group's new venture will have a challenge to succeed, Steil said today.
``It all depends on getting new products to the market before the Chicago boys have a chance to react,'' Steil said today. ``They're very quick in Chicago I assure you. They have their ear close to the ground and are very quick to react, in Washington and on the playing field.''
To contact the reporters on this story:
Nandini Sukumar in London at nsukumar@bloomberg.net;
Ann Saphir in Chicago at asaphir@bloomberg.net
Last Updated: July 27, 2006 15:59 EDT |
