CME Sweetens Offer for CBOT

The Associated Press
Friday, May 11, 2007; 6:30 PM

CHICAGO -- Chicago Mercantile Exchange Holdings Inc. sweetened its offer Friday for the Chicago Board of Trade's parent company in an attempt to end a bidding war, bumping the bid up 16 percent to nearly $10 billion and pledging a hefty stock buyback if the deal goes through.

CBOT Holdings Inc., which operates the Board of Trade, swiftly deemed the bid superior to the unsolicited one by IntercontinentalExchange Holdings Inc., even though ICE's offer is still higher _ $10.5 billion versus $9.9 billion, based on Friday's closing stock prices. It recommended that shareholders accept the revised bid from the Merc.

The counteroffer had been anticipated ever since Atlanta-based ICE launched its surprise effort in March, disrupting the plans announced five months earlier for the Mercantile Exchange to buy CBOT for about $8 billion.

Board of Trade Chairman Charlie Carey said it makes more sense for his company to join forces with the Merc 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.

All eyes are now on ICE, which bought the New York Board of Trade earlier this year, to see if it will come back with a stronger bid.

The exchange issued a statement saying its March bid offers greater value to shareholders and better growth prospects than CME's revised one, and said it was "reviewing this morning's announcement and evaluating our options." Chairman and Chief Executive Jeffrey Sprecher did not respond to a request for comment.

"Unless ICE comes back and raises their own offer, this would probably be the one to seal it," said Morningstar analyst Patrick O'Shaughnessy. "I'm not sure it would make sense financially for them to do so. But never count Jeff Sprecher out."

Chicago Mercantile Exchange raised its offer to $174.28 per share, or $9.21 billion, in stock. That is up from its October bid of $149.68 per share, or $7.91 billion.

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 percent of outstanding shares, for $560 per 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.

ICE's takeover bid eight weeks ago was $191.49 a share, or $10.12 billion.

The all-Chicago pairing would unite two centurylong rivals into a financial exchange so powerful it has raised concerns about the potential for a monopoly and higher prices amid careful scrutiny by the Department of Justice.

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