It’s a $9.9bn plan to crash a wedding, financed with freshly printed paper.
The Chicago Board of Trade has been working diligently with US regulators for five months putting together a merger with its great local rival, the Chicago Mercantile Exchange. But then along comes Intercontinentalexchange — the commodity trading upstart known simply as ICE — with its own disruptive marriage plans.
CBOT shareholders are due to vote next month on the CME deal, which is currently under review by the Department of Justice. Before today’s news both regulators and investors were widely expected to nod the merger through. While several big Wall St firms are against the CBOT/CME deal, arguing that it will concentrate too much derivatives business in the hands of one exchange, local opinion in Chicago has been volubly in favour of a local solution to global exchange consolidation.
The response to an alternative merger with ICE is bound to be cooler. This buccaneering electronic exchange, based in Atlanta, has already snapped up the New York Board of Trade and has a a string of international investments. It has watched its share soar since floating in November 2005, becoming the Wall Street Journal’s stock of the year for 2006.
Here are a few bullet points from the ICE statement:
- Pure paper offer, with Ice issuing 1.42 shares for each CBOT class A share, valuing the target’s paper at $187 based on Wednesday’s close. That is a premium of almost 40 per cent over the level of CBOT’s stock back in October when it announced its planned merger with local rival Chicago Mercantile Exchange.
- CBOT shareholders would own 51.5 per cent of the enlarged company
- ICE will “commit to the same terms as the CME offer regarding CBOT’s open auction markets and will protect and grow the CBOT metals complex.
- Unlike the proposed CBOT/CME merger, ICE reckons there are no significant antitrust issues, meaning a deal could be sewn up quickly.
- “Transaction benefits” of $240m in the first year. Earnings enhancing within 18 months
The slides from ICE’s investor presentation can be viewed here. Morgan Stanley is advising ICE on the move.