The Chicago Board of Trade’s proposed merger with the Chicago Mercantile Exchange has won the endorsement of a leading advisory service, which said the combination offers advantages over a competing merger bid by IntercontinentalExchange Inc.
But the CBOT’s planned merger with the Merc might have hit an obstacle: Its largest shareholder has submitted its more than 3 million votes against the deal, a source familiar with the matter said.
“Shareholders are faced with a difficult choice,” Institutional Shareholder Services, which analyzes and provides recommendations on proxy votes, said Wednesday.
Although ICE is offering more value in its stock-and-cash offer than the Merc, ISS concluded there is less risk in integrating the CBOT with the Merc. The two Chicago exchanges share essential back-office services, while ICE would have to expand and modify its services to accommodate the CBOT.
ISS said there is a “greater integration risk and less compelling strategic fit for ICE than for [the Merc]. We therefore believe that a combination of [the Merc] and the CBOT presents a compelling opportunity for shareholders.” It also urged Merc shareholders to vote for the merger.
The Merc and the CBOT have consistently argued that their merger contains much less risk than a merger between the CBOT and ICE, and have warned of catastrophic dangers if the integration of the CBOT and Atlanta-based ICE were to encounter problems.
An ICE spokeswoman declined to comment Wednesday.
Meanwhile, Caledonia Investments, which according to Bloomberg News is the CBOT’s largest shareholder, has cast its more than 3 million shares against the Merc deal, a source familiar with the matter said. The British investment trust can change its vote up until July 9, when Merc and CBOT stockholders are set to vote on the deal, and it might be trying to push the Merc into a richer offer.
Caledonia could not be reached for comment.
At the close of trading Wednesday, the Merc’s stock-and-cash offer was worth $198.40 a share of CBOT stock. The offer by ICE was worth $214.49. Because the offers differ in a number of other respects, it is difficult to compare them on the offer price alone.
The war of letters to CBOT stockholders continued Wednesday, with ICE warning that the Merc was intent on “buying CBOT on the cheap.”
The Merc recently sweetened its offer with a $9.14 special dividend if the merger is approved. ICE argued in its letter that its stock has markedly outperformed that of the Merc, that it was able to lure away the Russell index futures that had previously traded on the Merc, and that ICE is a rapidly growing exchange which has successfully integrated its acquisition earlier this year of the New York Board of Trade.
The CBOT, in a letter to its members, touted the Merc’s trading platform over that of ICE. The CBOT expects to adopt the Merc’s popular trading platform, Globex, next year if the merger goes through as planned.
“Chicago Mercantile Exchange technology has the proven capabilities to flawlessly match your trades in milliseconds even under the most volatile market conditions,” the CBOT said. “In contrast, ICE operates a Web-based technology that, in our view, does not match the Chicago Mercantile Exchange’s Globex in stability, functionality, speed or in its global distribution.”
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rmanor@tribune.com
