U.S. News

CME Sweetens CBOT Bid; CBOT Says CME Offer Is 'Superior'


Chicago Mercantile Exchange said Friday it sweetened its offer for CBOT Holdings by more than 16%, in an effort to thwart an unsolicited bid from Intercontinental Exchange Holdings.

CME also would buy back about 12% of the shares of the combined company if its bid succeeds.

Under the new agreement, CME will swap 0.35 share of its stock for each CBOT share, or about $174.28 a share. The revised offer values CBOT at about $9.21 billion, compared with a prior offer of $149.68 a share, or $7.91 billion, which it had made in October.

The latest bid is still lower than a rival unsolicited offer from ICE , an Atlanta-based electronic exchange. In March, ICE offered $191.49 a share, or $10.12 billion.

On Friday, CBOT said it reviewed ICE's proposal and concluded it was not superior to CME's latest offer. As a result, the companies reaffirmed their support of the agreed merger.

These exchanges host trading of futures and derivatives, which are contracts that allow investors to bet on gold, oil, stock indexes, interest rates and other items without owning them by tying their value to the price of an underlying commodity.

As the volume of derivatives trading around the world accelerates, exchanges are trying to grow so they can offer more products and contracts and operate with lower costs. A combined CME and CBOT would host trading of almost 9 million contracts per day, representing $4.2 trillion worth of underlying commodities.

Chicago Board of Trade Chairman Charlie Carey said it makes more sense for CBOT Holdings to join forces with the Chicago Mercantile Exchange because the two trading platforms share a service to clear the contracts traded on its floors. A CME-CBOT tie-up poses "significantly less integration risk" than a deal with ICE, he said.

The CME threw in an additional sweetener with its revised bid: If the deal closes, the combined company will offer to buy back up to $3.5 billion of stock, or 12% of outstanding shares, for $560 a share. CME shareholders and current CBOT shareholders who would become CME shareholders under the deal would be eligible to sell their stock under the tender offer.

The buyback offer replaces a $3 billion feature of the original proposal, which allowed some CBOT shareholders to receive cash instead of CME stock. The two Chicago-based exchanges expect to close the deal by the middle of the year, pending shareholder and regulatory approvals. Shareholders are set to vote on the deal June 9.

ICE has not issued a statement regarding the CBOT's stance.