Chicago Merc increases Board of Trade bid

Cattle Market & Farm Reports, Editorials
Dec 20, 2007
by DTN
Chicago Mercantile Exchange Holdings Inc. (CME) said it would increase the value of its $10 billion bid for the Chicago Board of Trade by adding a special dividend for owners of CBOT Holdings Inc. (BOT).

The move, announced last Thursday, is designed to respond to a similar proposal from IntercontinentalExchange Inc. (ICE), which is pursuing a hostile bid for CBOT, the owner of the country’s oldest futures exchange.

Shortly afterward, CBOT said it had rejected ICE’s latest offer. In its announcement, which followed a meeting of CBOT’s board, CBOT said the revised bid isn’t superior to its revised agreement with Chicago Merc. ICE’s revised bid, announced Tuesday, added the potential for shareholders to receive cash instead of stock. CBOT, however, said the revised bid didn’t adequately address strategic and operational issues such as integration and execution risk.

CBOT and its special transactions committee also reaffirmed their recommendation that shareholders vote for the Chicago Merc purchase over ICE’s counteroffer.

ICE’s primarily share-based bid has been valued higher than the Chicago Merc because the Atlanta energy market operator’s stock price has outperformed the stock of the Chicago financial futures exchange. Pressured by ICE’s success, Chicago Merc already has improved its bid once by giving the Board of Trade a bigger share of the combined new CME Group than it did when the deal was announced last fall.

Board of Trade and Chicago Merc officials have said their deal will lead to an easier integration, and the big merger received a shot in the arm last week when the Department of Justice said the deal could go through without conditions designed to prevent antitrust problems.

As part of the new proposal, all CBOT shareholders will receive a one-time cash dividend of $9.14 per CBOT share, or a total of $485 million. The new proposal also offers extra consideration available for each Board of Trade member that also has a right to trade on the Chicago Board Options Exchange. With the dividend included, those CBOT shareholders would get about $500,000. ICE and the options exchange recently agreed to pay these Board of Trade members about $500,000 each in a move aimed at settling a long fight between the Board of Trade and the options exchange over valuing the rights.

The Chicago Merc has pledged to fight the options-right case in court if it joins with Board of Trade, and is expected to continue to do so. Thursday, it removed the $15 million cap that it previously had on its legal spending for the case. The new dividend could make its merger proposal more competitive with ICE’s for the significant minority of shares controlled by Board of Trade members who want to see the options issue resolved in their favor.

Board of Trade shareholders are scheduled to vote on the Chicago Merc acquisition July 9. Last week, ICE said it would wage a proxy fight to convince those shareholders to vote no.
ICE Chief Executive Jeffrey Sprecher has successfully integrated past deals and has said a combined ICE-Board of Trade would form a fast growing agricultural and energy trading company that would take on the Chicago Merc for dominance in U.S. trading of futures contracts.