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CME Sweetens Bid for CBOT to Gain Support for Offer

Chicago Mercantile Exchange Holdings Friday increased its bid for CBOT Holdings for the third time in an effort to secure a winning vote Monday for the deal from shareholders of the Chicago Board of Trade parent.

In an interview on CNBC, Chicago Mercantile Chairman Terry Duffy said the increased offer is a "knockout punch."

CBOT Holdings shareholders will receive 0.375 shares of CME Holdings common stock for each share of CBOT, up from 0.350 shares in the earlier agreement. Upon completion of the deal, CBOT Holdings shareholders would own about 36% of the outstanding shares of the combined company.

"We’re very excited to bring this final offer to the Chicago Board of Trade and its shareholders," Duffy told CNBC Friday. "This is a knockout punch. We are very excited about this transaction."

IntercontinentalExchange began challeging CBOT's offer in March.

CME said its new bid was supported by Caledonia Investments, CBOT Holdings's biggest shareholder, which earlier had said the Merc's bid was too low and planned to vote against the merger.

On Friday, Australian-based Caledonia, which owns about 6.5% of CBOT Holding, said it was now encouraging other shareholders to vote "yes" on the merger.

"We fully endorse this merger and will vote in favor of this transaction," William Vicars, managing director of Caledonia, said in a statement.

Several CBOT Holdings traders and shareholders said this week they were looking to Caledonia for leadership on how to vote on Monday. Special shareholders meetings will be held by both exchanges on Monday.

On CNBC, Duffy said the combined companies will be a "force to be reckoned with."

"This gives us an opportunity to compete on the global market like we said all along we need to do," Duffy said. "These two institutions coming together, the CME and the CBOT, will be second to none."

CBOT shares were recently up $8.75, or 4.24%, at $214.90, while ICE shares gained $4.43, or 2.9%, at $156.24.

At Thursday's closing prices, CME's bid was worth $11.5 billion, topping ICE's current offer of $11.4 billion. Before the sweetened terms, ICE's offer valued CBOT about 5 percent above CME's bid.

On the CBOT trading floor it was all smiles and handshakes, and just short of champagne corks to toast what some traders now expect to be a convincing vote in favor of the deal.

"It feels like it could pass by an 80-20 margin, maybe 90-10. I think it's a fair offer and that's all we wanted," CBOT member Glenn Hollander of the grain merchandising firm Hollander & Feuerhaken told Reuters.

CBOT officials reported a pickup in voting on Friday. Proxy votes can be done in person, online or by phone and will culminate in shareholder and member meetings on Monday. CME shareholders will vote and meet separately.

CME and CBOT are the Nos. 1 and 2 U.S. futures exchanges, respectively, and combined would be the world's largest derivatives mart.

The new CME Group would have a market share of more than 85 percent of U.S. futures and options-on-futures trading, including almost 100 percent in the interest rate and stock index segments.

Despite some antitrust concerns, the merger won the blessing of the U.S. Justice Department in June after a drawn-out investigation.