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CME & ICE Trade Insults over CBOT Bids

The Chicago Mercantile Exchange (CME) called IntercontinentalExchange’s (ICE) $9.9 billion rival bid for the Chicago Board of Trade “significantly inferior” to its own $8 billion-plus bid; while ICE called its challenge “clearly financially superior”.


CBOT, which agreed last October to merge with the CME, received a competing bid from all-electronic energy and commodities marketplace ICE two weeks ago. CBOT shareholders met on Thursday afternoon, where CME CEO Craig Donohue tried to defend his exchange’s bid.


He reportedly told the CBOT shareholders that “we’re here to educate you about why the ICE proposal is inferior.” But shareholders were skeptical about leaving over a billion dollars on the table.


CME’s executive chairman Terry Duffy questioned ICE’s claim that it could save $200 million for the combined companies, calling it “significantly exaggerated.”


Money aside, the two bidders also threw in regulatory approval as a possible deal kicker or breaker. Jeffrey Sprecher, chairman and chief executive of ICE, played on fears that regulators could block or dilute the merits of the all-Chicago merger because of its near monopoly on clearing exchange-traded futures.


But Donohue had said during a conference call last week with analysts and reporters that he believes CME will receive a favorable decision from the department of justice, and that ICE would have to face similar regulatory hurdles if it were to go forward.


Sprecher said he was aware the US Department of Justice was looking carefully at the CME/CBOT deal for antitrust issues and that shareholders were being asked to vote without having knowledge of the outcome of the regulatory review.


A shareholder vote on the CME-CBOT merger has been postponed to after April 4 to allow shareholders a chance to review the competing offers.


Sprecher went on to say “CME’s rhetoric will not fool CBOT shareholders” adding that “an ICE/CBOT combination would give CBOT shareholders a majority stake in a faster growing, better positioned company.”


Under the proposal, ICE said it would commit to the same terms as the CME offer regarding preservation of Chicago‘s traditional open outcry trading floors, and that CBOT’s shareholders would own 51.5% of the combined company – rather than 31% in a potential CME deal – in a transaction “that would create the world’s most comprehensive derivatives exchange”.


ICE said also that it would move its headquarters from Atlanta to Chicago and that CBOT would retain its name.


The combination with CBOT would result in a futures and over-the-counter derivatives marketplace with a strong franchise in the agricultural, energy, interest rate and metals markets and would go head to head with the potentially jilted CME.

As part of its campaign, CME sent a letter to shareholders of CBOT Holdings communicating the benefits of their merger agreement and outlining its position on why the unsolicited ICE/CBOT proposal is inferior to the existing CME/CBOT merger proposal (see Squawkbox March 19).

In the letter, Duffy and Donohue say: “We agree with the many financial and industry experts who have publicly expressed reservations and concerns that ICE brings nothing to the table to benefit CBOT. We believe the ICE proposal lacks a convincing strategic basis, offers less attractive long-term financial prospects and creates enormous new risks for customers and shareholders of both companies.

“CBOT doesn’t need ICE to expand its global customer base or to gain traction in the OTC space. ICE is a much smaller player with more limited opportunities for organic growth, a less extensive global presence, a niche customer base and a more limited track record of innovation. In stark contrast, CME, like CBOT, is a leading global financial institution.”

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