CME ups bid for CBOT, finally

In the frantic few days and weeks following the Intercontinental Exchange’s unsolicited bid for the Chicago Board of Trade there was a strange disconnect between CBOT members and the pronouncements of the Chicago Mercantile Exchange’s leadership.

CBOT members to a man pretty much said the CME would need to come through with a higher bid to match or surpass the value of the ICE offer and at the time CME Executive Chairman Terry Duffy coolly and calmly on several occasions rejected the notion of a higher bid, stating confidently that their current definitive agreement remained superior to the ICE bid.

Stranger yet was the apparent confidence of CBOT members in the face of such pronouncements. Several members mentioned to Futures in passing that they expected the CME to come through with a higher bid and heard it was already in the works. It was hard to determine whether or not the old Chicago trader grapevine was alive and well or whether this was simply wishful thinking on the part of members.

Apparently they knew something because today the CME and CBOT announced revised terms of the definitive agreement. CBOT Holdings Board of Directors and its special transaction committee have unanimously recommended that CBOT shareholders vote in favor of the new agreement.

Under the terms of the revised agreement, CBOT Holdings shareholders will receive 0.3500 shares of CME Holdings Class A common stock for each share of CBOT Holdings Class A common stock, an increase of 16% from the original agreement. Once the transaction is complete, current CBOT shareholders will own approximately
34.6% of the outstanding shares of the combined company, up from approximately 31.2% in the original agreement. According to the release, CBOT Holdings will also receive additional representation on the combined company's Board of Directors, with 10 of the 30 seats.

As part of the revised offer, CME will make a cash tender offer for up to $3.5 billion, approximately 12% of the combined company, at a fixed price of $560 per share, to commence shortly after the closing of the merger.

In the release CBOT Chairman Charlie Carey said, "After a thorough review of ICE and careful consideration of its proposal and the revised proposal from CME, the Boards of CBOT Holdings and the CBOT concluded that the revised merger agreement with CME offered greater overall benefits for our shareholders and members.”

No where does it say when CBOT received the updated offer or how long they reviewed it, but from the beginning CBOT members were more comfortable with a link up with the CME, they just felt the original deal undervalued the CBOT and weren’t going to take less just because the Merc deal made more sense synergistically.

Carey added, "Our Boards and advisors carefully reviewed both the short-term and long-term value of both transactions. A combination with the CME will create the most extensive and diverse global derivatives exchange, transforming global derivatives markets and creating efficiencies for customers and members while delivering significant benefits to shareholders.”

CME’s Duffy said, "We believe there is strong support for the combination from shareholders and members of both companies, and these revised terms and the cash tender offer makes our already compelling transaction even more attractive.”

The CME and CBOT Holdings will file supplemental and amended proxy materials. Each exchange will hold a separate special meeting of shareholders and or member on July 9 to vote on the revamped agreement. Proxy cards previously executed and submitted by CME and CBOT Holdings shareholders and CBOT members who continue to hold their shares or memberships, respectively, on the new record date will remain valid.

About the Author
Daniel P. Collins

Editor-in-Chief of Futures Magazine, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange. Dan joined Futures in 2001 and in 2005 he was promoted to Managing Editor, responsible for overseeing all the content that went into Futures and futuresmag.com. Dan’s incisive reporting and no-holds barred commentary places him among the most recognized national media figures covering futures, derivative trading and alternative investments.

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