ICE Confirms Deal With CBOE

The Associated Press
Wednesday, May 30, 2007; 4:52 PM

CHICAGO -- IntercontinentalExchange Inc. announced a deal Wednesday that effectively strengthens its offer for the Chicago Board of Trade and gives it a better chance of outmaneuvering the Chicago Mercantile Exchange.

The Atlanta-based energy exchange operator settled with the Chicago Board Options Exchange _ long affiliated with CBOT _ on a legal dispute over trading rights and giving Board of Trade members more cash if the ICE-CBOT deal goes through.

That gives it momentum, as well as the higher-valued bid, less than six weeks before CBOT shareholders vote on whether to accept an offer from the Merc's parent company.

ICE and the options exchange said they would pay CBOT members who own CBOE exercise rights $500,000 in cash or securities for each right. The move, which could cost up to $665.5 million, places a value on rights that are at the center of a legal dispute between CBOT and CBOE members over ownership of the options exchange. ICE and CBOE would each foot half the bill.

The offer is contingent on ICE's acquiring CBOT Holdings Inc., the parent company of the Board of Trade. ICE is bidding against Chicago Mercantile Exchange Holdings Inc. to buy the country's oldest futures exchange.

Last week the Chicago Merc, which operates the country's largest futures exchange, boosted its bid 16 percent, gaining approval from the CBOT board, which deemed the offer superior to ICE's.

But some Board of Trade members expressed displeasure that the Merc's bid remains valued below the one from ICE, leaving the outcome unclear. Shareholders, a majority of them BOT members, are scheduled to vote on the deal July 9.

Analyst Christopher Allen of Bank of America Securities said the deal increases the probability that ICE could prevail in the bidding tussle.

Rob Rutschow of Deutsche Bank agreed, although he doesn't think it is enough to tip the scales for ICE.

"We still continue to believe that if CME gets Department of Justice approval, that it will be the eventual winner in the CBOT bidding," he wrote in a note to investors. "However, ICE is making all of the right moves to try to win the bid, and we view this as a very smart maneuver on ICE's part to help shore up its support among its toughest constituency."

ICE, an upstart that last year bought the New York Board of Trade, started the duel by making an unsolicited bid that was higher than Chicago Merc's initial offer.

CBOE was formed by CBOT members three decades ago, but the two have been in a dispute over how much of CBOE is owned by CBOT. The proposed deal would end that legal battle by paying CBOT members holding the exercise rights either cash or equity in CBOE.

Shares in CBOT Holdings rose $4.65, or 2.4 percent, to $197.62 Wednesday. ICE shares rose 96 cents, or 0.65 percent, to $148.71.


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