Chicago Mercantile Exchange Holdings Inc. today raised its bid for CBOT Holdings Inc., and CBOT’s board recommended CME’s offer over the competing proposal from IntercontinentalExchange, Inc.
The CME and CBOT announced that they have revised the terms of their definitive merger agreement. In addition, the CBOT Holdings board and its special transaction committee have unanimously reaffirmed their recommendation that its shareholders vote in favor of the merger agreement with CME. The board also concluded that the unsolicited proposal submitted by the ICE was not superior to the revised CME transaction.
Under the terms of the revised agreement, CBOT shareholders will receive 0.3500 shares of CME Holdings Class A common stock for each share of CBOT Holdings Class A common stock, an increase of 16% from the original terms of the merger agreement. Following completion of the transaction, current CBOT Holdings shareholders will own approximately 34.6% of the outstanding shares of the combined company, up from approximately 31.2% in the original agreement. CBOT Holdings will also receive additional representation on the combined company’s board, with 10 of the 30 seats filled by current CBOT Holdings directors.
The CME also announced that it will make a cash tender offer for up to US$3.5 billion in common stock of the combined company, or approximately 12% of the combined company’s outstanding shares, at a fixed price of US$560 per share, to commence shortly after the closing of the merger. The tender offer will be open to CBOT Holdings shareholders that receive CME stock in connection with the merger, as well as existing CME shareholders. The tender offer will be in lieu of the cash election feature that was part of the original merger agreement. CME has received financing commitments for US$2.5 billion from Lehman Brothers which, along with available cash balances, will fund the tender offer.
The merger is expected to be accretive to earnings of the combined company on a cash basis within 12 months and on a GAAP basis within 12 to 18 months following the close. The share repurchase is expected to provide additional earnings accretion.
“The board and management of CME and CBOT recognize the tremendous potential for value creation in a merger of our two companies,” said CME executive chairman Terry Duffy. “We believe there is strong support for the combination from shareholders and members of both companies, and these revised terms and the cash tender offer makes our already compelling transaction even more attractive. Since we announced the original agreement last October, both CME and CBOT have delivered strong financial performance and volume growth, underscoring the strategic rationale for bringing these two great Chicago institutions together. We look forward to completing this merger and realizing the full benefits for customers and shareholders of both companies.”
“After a thorough review of ICE and careful consideration of its proposal and the revised proposal from CME, the boards of CBOT Holdings and the CBOT concluded that the revised merger agreement with CME offered greater overall benefits for our shareholders and members,” said CBOT chairman Charlie Carey. “Our boards and advisors carefully reviewed both the short-term and long-term value of both transactions. A combination with the CME will create the most extensive and diverse global derivatives exchange, transforming global derivatives markets and creating efficiencies for customers and members while delivering significant benefits to shareholders. In addition, given our common clearing arrangement with CME and the CME Globex electronic platform, we believe a combination with CME presents significantly less integration risk than a combination with ICE. We look forward to the July 9th vote and to completing the transaction as soon as possible after the vote.”
Both parties confirmed that they currently expect the Department of Justice to conclude its review of the merger prior to the time of the shareholder votes.
“Through our CME/CBOT merger, we are poised to create a premier global exchange, with the capabilities and expertise to continue to develop innovative products, compete successfully in the international marketplace and participate in the growing OTC markets,” said CME chief executive officer Craig Donohue. “The more we explore the opportunities this merger creates, the more we see the tremendous potential for product innovation, technology enhancements, trading opportunities and increased efficiencies unique to this merger. The significant benefits and enhanced synergies we expect to deliver as a result of this merger validate our enhanced offer. Based on revised estimates, the companies now expect pre-tax cost savings of at least US$150 million to be achieved within the first two years following close, up from the US$125 million originally identified. CME also has identified at least US$75 million in revenue synergies on a net basis as a result of the combination.”
@page_break@“From a strategic and operational perspective, the CME combination provides outstanding opportunities for growth, efficiencies and innovation, creating the leading global derivatives exchange in all major asset classes and one of the world’s most liquid marketplaces,” said CBOT president and CEO Bernard Dan.” We look forward to working with the CME management team to complete this transaction and to achieve the tremendous potential we believe the combined company will provide to its shareholders.”
CME sweetens bid for CBOT
CBOT shareholders to receive improved exchange ratio and increased ownership of combined company
- By: James Langton
- May 11, 2007 May 11, 2007
- 09:20