It looks like the CME may prevail over the ICE in their quest for the CBOT:
July 6, 2007
CME Beefs Up CBOT Bid
By REUTERS
Filed at 12:06 p.m. ET
CHICAGO (Reuters) - Chicago Mercantile Exchange Holdings Inc. <CME.N> said on Friday it increased its takeover offer for CBOT Holdings Inc. <BOT.N>, winning the support of Caledonia Investments Pty. Ltd., CBOT's biggest shareholder.
The beefed-up terms, a 7 percent improvement, appeared intended to halt a challenge from IntercontinentalExchange Inc. <ICE.N>, the upstart energy exchange that has been bidding for CBOT since March.
"This is really ... a knockout punch," said CME Executive Chairman Terry Duffy.
Shareholders of the Chicago Board of Trade's parent would receive 0.375 share of CME Holdings common stock for each share of CBOT, up from 0.350 shares in the earlier agreement, pushing their stake in the combined company to about 36 percent.
"This is our best and final offer, and we will not change it," CME Chief Executive Craig Donohue said on a conference call with analysts.
At Thursday's closing prices, CME's bid was worth $11.5 billion, topping ICE's current offer of $11.4 billion. Before the sweetened terms, ICE's offer valued CBOT about 5 percent above CME's bid.
"CME (is) executing a skilled defense of its prize," said Edward Ditmire, analyst at Fox-Pitt, Kelton in New York.
On the CBOT trading floor it was all smiles and handshakes, and just short of champagne corks to toast what some traders now expect to be a convincing vote in favor of the deal.
"It feels like it could pass by an 80-20 margin, maybe 90-10. I think it's a fair offer and that's all we wanted," said CBOT member Glenn Hollander of the grain merchandising firm Hollander & Feuerhaken.
CBOT officials reported a pickup in voting on Friday. Proxy votes can be done in person, online or by phone and will culminate in shareholder and member meetings on Monday. CME shareholders will vote and meet separately.
CME and CBOT are the Nos. 1 and 2 U.S. futures exchanges, respectively, and combined would be the world's largest derivatives mart.
The new CME Group would have a market share of more than 85 percent of U.S. futures and options-on-futures trading, including almost 100 percent in the interest rate and stock index segments.
Despite some antitrust concerns, the merger won the blessing of the U.S. Justice Department in June after a drawn-out investigation.
"We will be a force to be reckoned with," Duffy said.
CALEDONIA THE KEY
Australian-based Caledonia, which owns about 6.5 percent of CBOT shares, said it was encouraging shareholders to vote "yes" after earlier opposing the bid as too low.
"We fully endorse this merger," William Vicars, managing director of Caledonia, said in a statement. "A CME/CBOT combination offers the best opportunity for continued growth."
Several CBOT Holdings member/shareholders said this week they were looking to Caledonia for leadership on how to vote.
Many investors said the bidding war for CBOT was likely over.
"The chance of ICE winning CBOT is very small at this point," said Rick Wetmore, a portfolio manager at Turner Investment Partners in Berwyn, Pennsylvania, which has $25 billion in equities under management.
"The CME has the financial muscle and the desire to make this happen ... The synergies are so strong that CME can afford to pay more," said Wetmore, who owns shares in CME and ICE.
One arbitrageur said the CME's 11th-hour move "is just the latest example of companies having to up their bid to ensure getting enough votes. Reality sets in, and they do what they need to do to get the deal done."
In trading on the New York Stock Exchange, CME shares were down 69 cents to $555.00 after trading as low as $544.15 earlier. CBOT jumped $11.55, or 5.6 percent, at $217.70, while ICE was up $3.66, or 2.4 percent, at $155.47.
(Reporting by Ros Krasny, additional reporting by Dan Wilchins in New York, Jessica Hall in Philadelphia, Christine Stebbins and Sam Nelson in Chicago)
Copyright 2007 Reuters Ltd.
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