The Chicago Mercantile Exchange and the Chicago Board of Trade unveiled a sweetened merger offer to shareholders Thursday, hoping to defeat a competing offer for the CBOT by the IntercontinentalExchange Inc.
The Merc and CBOT offer added $9.14 in cash for each share of CBOT, worth a total of about $485 million. The offer also enhanced the terms offered to CBOT traders, a group vital to winning a merger.
The move continued a week of dramatic developments in the battle for CBOT, the nation’s oldest commodities exchange and an institution that has remade itself into an international center for financial trading.
“We are giving people cash they can see,” said Bernard Dan, chief executive officer of the CBOT. “We are giving them certainty.”
The cash increase, technically a dividend by the CBOT to be paid just prior to the merger, is meant to counter a competing merger effort by the IntercontinentalExchange. Often known as ICE, the Atlanta-based exchange this week offered up to $2.5 billion in cash to CBOT shareholders in what had previously been an exclusively stock-for-stock deal.
“This puts us in a very, very strong position,” said Craig Donohue, chief executive officer of the Merc. “Ours is the more valuable deal.”
And for the second time, the CBOT said formally that it did not want to merge with ICE, despite the lure of cash.
“Our boards and advisers reviewed this latest proposal, considering both the short-term and long-term value to the company and found that it was not superior to the revised CME merger agreement,” said Charlie Carey, chairman of the CBOT.
The decision to add cash to the offer was made at 5:30 a.m. Thursday, exchange officials said. The idea had been discussed for at least several weeks, one source said.
Both offers retain their stock-for-stock provisions, which vary daily in value as stock prices change.
More value
So far ICE’s offer has included substantially more value for CBOT shareholders, although that has diminished recently.
On Thursday, the stock component of the Merc offer was $191.62 per CBOT share, but with the cash component added, the offer’s value was $200.76.
The ICE offer was $219.94.
The ICE deal, based on current stock prices, is worth more than $11 billion overall, compared with the Merc’s offer of about $10.6 billion.
The two Chicago exchanges also offered an almost immediate $250,000 in cash to CBOT full members who hold the exercise rights to trade on the Chicago Board Options Exchange and are willing to give them up to the Merc.
Rights issue
In the offer by ICE, in conjunction with the CBOE, those members would receive at least $500,000 and possibly more but would lose their exercise rights. They would have the option to own equity in the exchange if it someday goes public.
But the CBOT offer would also allow traders the option to participate in a legal battle by the Board of Trade to retain those rights in the option exchange, which argues they disappear if CBOT merges.
If the legal effort falls through in the future, the traders will still get $250,000 at that time under the Merc offer.
Jerry Zordani, a CBOT member since 1973, said the new Merc offer is enticing.
“The Merc’s latest offer is very compelling,” Zordani said. “It preserves the exercise rights.”
“I think the Merc has become the favorite right now,” he said. Previously he had been undecided.
Talking to members
Merc Chairman Terry Duffy has been talking with CBOT members for weeks.
“I was listening to their concerns about what the ICE offer was compared to the Merc offer,” Duffy said.
He said that the exercise rights were clearly an issue for CBOT members, and that is why the Merc structured its deal so they could try to retain them if they choose.
Neither ICE nor the CBOE had much to say after the enhanced Merc offer was made public.
“We continue to believe the ICE/CBOE agreement provides a superior outcome to full CBOT members by offering them greater value, fewer restrictions and the opportunity to participate in the equity of CBOE, without the need for litigation and considerable delay that will inevitably result from what CME has proposed,” said CBOE Chairman William Brodsky.
ICE responded in one sentence: “We are evaluating the latest CME proposal and continue to believe that ICE’s proposal is clearly superior.”
But at least some CBOT members disagree.
“I think they are in a strong position to win,” said trader Scott Nelson, referring to the Merc. “I think they have made it.”
Stronger position
Jon Najarian, a member of the CBOT, said he leans toward ICE’s proposal, but also said the Merc is now in a much stronger position than before.
“I think they are right at the edge of getting this thing approved,” he said. “For the people who want to hold on to the stock, the Merc is probably a better deal.”
Meanwhile, a class-action shareholder lawsuit filed against the CBOT earlier this year alleging it was remiss in refusing the ICE offer has been dropped. A lawyer for the plaintiffs said the Merc offer satisfies his clients.
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rmanor@tribune.com
