Chicago Merc to Buy CBOT for $8 Billion
Tuesday October 17, 9:52 am ET
Chicago Merc to Acquire CBOT for $8 Billion, Deal to Close in Mid-2007
CHICAGO (AP) -- Chicago Mercantile Exchange Holdings Inc. said Tuesday it agreed to purchase CBOT Holdings Inc. for $8 billion in a move to create a global derivatives exchange with average daily trading volume approaching 9 million contracts per day.
The combined company will be named CME Group Inc., and will be headquartered in Chicago. The news sent CBOT shares soaring $20.01, or 15 percent, to $154.52 in early trading on the New York Stock Exchange, above the stock's previous 52-week high of $140.67. CME shares rose $20.25, or 4 percent, to $523.50 in early trading.
CBOT stockholders will have the right to receive 0.3006 shares of CME common stock for each share of the Chicago Board of Trade, or cash equal to the value of the exchange ratio based on a 10-day average of closing prices of CME common stock at the time of the merger.
The cash portion of the purchase price won't exceed $3 billion. If no shareholders elect to receive cash, shareholders of CME will own 69 percent of the merged company and CBOT holders will own 31 percent, with CME issuing about 15.9 million shares valued at about $8 billion.
"The idea to merge these two great companies has been contemplated for decades," said CME Chairman Terrence A. Duffy, who will become chairman of the combined organization.
Executives said serious talks between the two companies have been under way for nearly a year.
Thursday is the one-year anniversary of CBOT's initial public offering.
Based on Monday's closing stock prices of both companies, the merged company is valued at $25 billion. The purchase is expected to add to earnings in 12 to 18 months after closing, and deliver pretax cost savings of more than $125 million beginning in the second full year after completion.
CBOT Chairman Charles P. Carey will become vice chairman. CME CEO Craig S. Donohue will serve as CEO of the new company with CBOT CEO Bernard W. Dan remaining in his current position to oversee CBOT's activities, products and customers until the transaction is complete, at which time he will serve as special adviser to the combined company for one year.
The deal quickly won praise from Wall Street.
"As I've always said, this is the one merger that made the most sense," said Scott Appleby, an analyst at Deutsche Bank.
If the deal is approved, the two companies will move to a single trading location at the Chicago Board of Trade.
The transaction is expected to close by the middle of 2007, pending approvals by regulators and shareholders of both companies and CBOT members.
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