Saturday, March 17, 2007


The deal announcement surely shook heads, and the fact that many CBOT execs had to find out when bids were slipped under their hotel room doors only makes the whole process more interesting. The Intercontinental Exchange (the ICE as it is often called) made an unsolicited bid for the Board of Trade that could unravel CBOT's merger plans with the CME. Suddenly we could have a bidding war and surely both sides have their cases.

The CME-CBOT merger makes sense on several fronts for both parties. The CME currently does all clearing for the CBOT, so a merger makes operational sense. The fact that both of the behemoth futures exchanges are in Chicago only adds to the ease of closing a transaction. To be sure, antitrust issues remain given the share of the U.S. futures market the combined entity would command. The CME-CBOT supporters will point to the globalization of the futures market and the blending of derivatives exchanges that makes a CME-CBOT deal a big piece of the pie, but not as big as one might think.

The ICE deal makes a lot of strategic sense for both parties. Agriculture futures and energy futures (ICE concentrates on energies) make ideal complements. The ICE offered a premium of 12% to the CME offer for CBOT and the ICE is proposing that the CBOT own 51% of the pro forma company. The fact that CBOT can keep control of the company has value which only sweetens the ICE deal.

The expected outcome? It's tough to say. The CBOT says they are planning to stay the course with the CME but will take a hard look at the ICE offer (it's their fiduciary duty to shareholders to do so).

Links on the Deal
Chicago Tribune Article
WSJ Article
Reuters Article


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