It's nice to be wanted: GFI bidding war heats up

January 21, 2015 09:23 AM
CME Group/BCG up bids for GFI

The bidding war for GFI Group Inc. continues to heat up, as both CME Group and BGC Partners raised their respective offers on Tuesday.  

CME Group and GFI announced a definitive agreement for a CME acquisition of GFI on July 30. Since then, BGC, a 13% shareholder of GFI, made a competing bid.

CME is now offering $5.85 per share for GFI, up 15¢ from the previous offer, payable in a mix of CME Group Class A common stock and cash, according to a CME release. BGC has raised its all-cash offer to $6.10, which is now at a 4% premium to CME Group’s updated offer.

As part of CME Group’s revised offer, the GFI Management Consortium and certain affiliates have agreed to forego approximately $40 million that apparently was part of the original offer. According to the CME release, it is passing along this consideration to GFI stockholders.

A decision on the most recent CME offer is scheduled to be voted on by GFI Group stockholders on Jan. 27. BGC’s competing offer is intended to force the shareholders to decline the CME bid. It expires at 5:00 p.m. on Feb. 3, according to a BGC release.

Howard Lutnick, chairman and CEO of BGC, said in a release that he “remains confident that BGC’s stockholders and bondholders will benefit from a combination of GFI and BGC, as it will result in increased productivity per broker and meaningful synergies.”

Richard Repetto, equity research principal at Sandler O’Neill + Partners, L.P., believes that both contesting groups would benefit differently from the acquisition. “They’re not ‘per se’ direct competitors,” Repetto says. “They could both use these trading platforms that are at stake. The interdealer brokers of GFI and BGC are [competing], and that’s where you’re seeing the competition in price.”

The benefits for the CME are mostly intangible according to Repetto. “It gives them a nice, strategic piece to go into the European portfolio,”  Repetto says. “It would just move them forward in the European positioning.”

When the transaction was first announced in July, CME Group Executive Chairman and President Terry Duffy said, “We will expand CME Group’s involvement with European energy markets and increase operational efficiencies and trading opportunities for all European energy market participants.” He added, “This acquisition is another strong example of how CME Group is expanding its international footprint and committed to the European marketplace overall.”

On Jan. 15, GFI’s purchase price increased by approximately $37 million, according to a GFI press release.   

Though they’re currently the underdog, BGC may have more to gain from the deal—a platform to trade in addition to expansion opportunities—says Repetto. “What’s clear is that the interdealer broker was not valued as highly by GFI initially as probably what others in the market were willing to pay. BGC has basically driven the price up.”

A special committee formed by the CME Board of Directors and independent GFI directors recommends that the stockholders, who hold the final decision, vote to approve CME’s bid and merger agreement.

After the July 30 announcement, GFI stock went from $3.11 per share up to $4.55. The stock spiked again after BCG made its competitive bid (see chart). The current CME offer is at an 88% premium to the pre-announcement price.  

As of Wednesday, the final vote on the CME bid will be held on Jan. 27, nearly a week before the BGC offer expires.



About the Author

Jaime Toplin is the editorial and web intern at Futures Magazine. She also contributes content to Hard Assets and the Alpha Pages. Jaime is a senior at Northwestern University's Medill School of Journalism, studying magazine and online journalism as well as legal studies. She is the VP of Public Relations for her student government and works for a Medill professor who researches digital media.