CME buying CBOT to create the largest exchange in the world

http://biz.yahoo.com/rb/061017/financial_cbot.html?.v=8

CME to acquire exchange rival CBOT for $8 bln
Tuesday October 17, 2:47 pm ET
By Jonathan Keehner and Dan Wilchins


NEW YORK (Reuters) - Chicago Mercantile Exchange Holdings Inc. (NYSE:CME - News), the world's biggest financial exchange, said on Tuesday it would acquire rival CBOT Holdings, Inc. (NYSE:BOT - News) for more than $8 billion in a deal that would combine the two largest U.S. futures exchanges.

Merging the onetime bitter cross-town rivals would end more than a century of competition, allowing the proposed CME Group Inc. to cut costs and gain more customers in areas such as interest-rate and commodities futures. It would also brighten the prospect for international expansion.

"These are probably the two wealthiest, most powerful futures exchanges in this country, and combining them makes almost a Microsoft-type entity, where they're monstrous and hard to compete with," said Randy Frederick, director of derivatives and corporate market data at Charles Schwab & Co. in Austin, Texas.

The transaction, expected to close in mid-2007, values CBOT at $151.27 per share, a 16.7 percent premium to its closing price on Monday and nearly triple the value of CBOT shares when the exchange went public a year ago.

The combined company will operate from a single platform located at the CBOT trading floors in the heart of Chicago's downtown financial district.

The Chicago Board of Trade offers Treasury and agricultural commodity futures, while CME has trading in interest rate, equity index, foreign exchange and agricultural futures.

Products at both exchanges have been booming lately, feeding investor enthusiasm and allowing for fee increases.

About $484.4 trillion worth of futures and options contracts traded on exchanges in the second quarter, according to the Bank for International Settlements, up 30 percent from $372.4 trillion in the same quarter last year.

CME's Chairman Terrence Duffy and its CEO Craig Donohue will hold the same posts at the new company. Charles Carey, CBOT chairman, will be vice-chairman and Bernard Dan, CBOT CEO, will serve as special advisor.

SHARES SURGE, HEDGING POWERHOUSE SEEN

CBOT shares surged $17.29, or nearly 13 percent, to $151.62 on the New York Stock Exchange, while CME shares rose $12.00, or over 2 percent, to $515.49 on the NYSE.

The announcement also lifted shares of other derivatives markets like IntercontinentalExchange (NYSE:ICE - News) and the International Securities Exchange (NYSE:ISE - News), as investors braced for more consolidation and growth in a once sleepy sector that has become a hotbed of mergers activity.

The CME and CBOT had previously considered combining, most recently in June of 2005, said Keefe, Bruyette & Wood analyst Richard Herr.

The decision to strike a deal now was prompted by "unprecedented global competition," CBOT Chairman Carey said on a conference call.

The combined entity will face international competition from rivals Paris-based Euronext (Paris:ENXT.PA - News) and Frankfurt's Deutsche Boerse (XETRAB1GN.DE - News) as futures trading picks up in emerging markets such as Asia, according to analysts.

The new company may also be positioned for future acquisitions, perhaps eyeing the Chicago Board Options Exchange, the largest U.S. options market, KBW's Herr said. Prior talks of merging the CBOE and CBOT had ended in August.

Beginning in the merger's second full year, the exchanges expect to save more than $125 million annually before taxes. The deal should add to earnings within 12 to 18 months, the exchanges said.

CBOT on Tuesday said third-quarter profit nearly tripled to roughly $49 million from a year ago, driven in part by booming trade in its new electronic grain-trading platform.

Experts said the proposed deal would be scrutinized closely by the U.S. Justice Department but would likely win approval.

The combined exchange would dominate hedging for debt futures and Eurodollars.

Under the terms of the deal, CBOT shareholders will receive 0.3006 shares of CME Class A common stock for each of their CBOT shares, or a roughly equivalent amount of cash.

The cash portion of the deal is subject to a $3 billion limit, the exchanges said.

Lehman Brothers and William Blair advised CME, while JPMorgan was sole adviser to CBOT. CBOT also had a special transaction committee that was advised by Lazard Freres & Co.

Reuters and CME agreed in May to set up a foreign exchange marketplace.

(Additional reporting by Christian Plumb, Joe Giannone, Emily Chasan and Caroline Humer in New York and Ros Krasny in Los Angeles)

 

sorry i meant largest futures exchange

 

well if you hold you also get one of the best stocks on the planet in CME. but if you are just trading it's probably a decent point to exit.

 

that's true but hasn't BOT had higher valuations than CME for awhile? and just curious where you saw the 500 p/s. i see both cme and bot under 16 p/s.

check out USG as well. i spotted it after it came out of bankruptcy as a potential long term investment for my dad's IRA. it was kind of cool how after he got in the news came out that buffett was buying a ton of it. i think he is a 19% holder now. anyhow...it's up about 4 points since i saw it...might be one to look at for you.