The stock is currently being courted by both the Chicago Mercantile Exchange (CME) as well as the Intercontinental Exchange (ICE). The bidding has been fast and furious as each company desperately wants to have access to BOT's valuable business. According to the current market value of all participants, the bid by ICE is a bit higher. ICE is offering 1.42 shares for every BOT shares - with ICE's 4:00 close of 149.19, the value for each share of BOT is $211.85. CME is offering 0.35 shares for each BOT share. CME closed at 557.07 implying a value of $194.97 for BOT. BOT closed at a premium to CME's bid and a discount to ICE's bid. From the sidelines, it looks as if the market is expecting CME to acquire BOT but it is likely that CME will increase their offer for the company.
After my previous post on Intercontinental Exchange, I was informed by CBOE management that I had some factual misunderstandings regarding their agreement with the CBOE and BOT. In an effort to sweeten their bid for BOT, ICE offered to solve a dispute that has been simmering between BOT and CBOE for years. I erroneously believed that this agreement involved ICE acquiring the CBOE after completing their proposed acquisition of BOT. The actual agreement is much different.
When CBOE was spun off from BOT, every full BOT member had rights to trade on the CBOE. This right included voting rights for CBOE matters but one could not exercise that right and still have privileges at the BOT. However, a BOT member that exercised his right to trade / vote on the CBOE could subsequently revert back to being a BOT member. If BOT merges with CME, the CBOE believes that these rights will be terminated according to the original legal agreement. This obviously is not acceptable to BOT members who consider these rights to have value. ICE in its desire to complete the deal with BOT members has agreed to compensate BOT members for their loss of this right to the tune of $500,000 per member. This offer is contingent on BOT merging with ICE and would leave ICE and CBOE separate and distinct entities.
Now for those BOT members reading this, I am sure that is an oversimplification of the details but it should hit the high points and still be relatively understandable to us who are not members of either firm. My apologies for my earlier misconception.
At any rate, it should be exciting to see who ends up purchasing BOT, who is left without a partner (CME or ICE) and what will happen to each company after a deal is inked. I have a feeling that BOT will end up agreeing to be bought by CME for a higher price than the 0.35 shares, and ICE will receive an offer from NYX or possibly another player hoping to pick up a futures exchange to add to their portfolio. There is significant value for these companies in consolidating and cutting back on expenses while still benefiting from the global increases in trading and liquidity that is so prevalent.
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FD: Author has a long position in BOT and ICE, and a short position in CME
3 comments:
You are short CME? What an idiot. Good luck.
Haha - thank you - i may need it.
To clarify, I own put options on CME. I paid a premium for the right to sell CME at $500. Obviously i will not exercise that right unless the stock drops. I can only lose what i paid for the options so i won't get hit hard if it rallies quickly. My thought is that if CME is forced to increase their bid for BOT the stock may take a quick hit.
Maybe the Boards of CBOT Holding and CBOT should reconsider their assessment of the ICE offer. See "Exchange Wars: ICE vs. CME" at http://www.customersandcapital.com/ for an analysis of the unanticipated consequences faced by whoever wins the bidding.
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