Coming a day after IntercontinentalExchange (ICE) urged Chicago Board of Trade (CBOT) shareholders to reject the merger proposal of the Chicago Mercantile Exchange (CME), management at CME on Friday urged CBOT’s shareholders and members to vote in favor of the combination of the Chicago exchanges at a July 9 special meeting.
In the letter to CBOT shareholders, CME Chairman Terrence A. Duffy and CEO Craig Donohue said, “You are being asked to cast the most important vote in the CBOT’s 159-year history. We believe the choice is clear and you should vote for the CME/CBOT merger.”
The CME execs said the combined company would trade more than 10 million contracts a day, compared to only 7.3 million contracts at Eurex and 3.5 million contracts per day at Euronext.liffe. “CME and CBOT together would be the largest derivatives exchange in the world,” they said. “ICE, which is the No. 2 player in energy markets, only trades 700,000 contracts per day and does not materially enhance CBOT’s position.”
CME added that the merged company would have a combined market capitalization of approximately $30 billion and a strong balance sheet, which would position shareholders to benefit from further consolidation through mergers and acquisitions, joint ventures, partnerships and transaction processing opportunities.
One of CME’s larger selling points is its integration strategy. The exchange noted that it has integrated clearing and trade matching for the second and third largest futures exchanges in the U.S., respectively, within months and without disruption — facilitating immediate growth. CME added that there has been seven months of detailed integration planning with CBOT, so it is ready to integrate immediately upon closing.
“Our merger agreement provides you with a valuable and more stable currency, larger and more realizable growth opportunities, significant member benefits and low integration risks or distractions,” Duffy and Donohue said in the letter. “Additionally, with regulatory clearance behind us, there are no material third-party conditions to the completion of our merger other than shareholder and member approvals.
“In contrast, ICE is asking you to choose a compelling merger opportunity when it has been rejected twice by your board of directors and management as an inferior offer,” they added. “ICE is asking CBOT members and shareholders to assume the significant operational risks and potential value destruction associated with its proposal. It is asking you to jettison your board’s strategy and your opportunity to benefit in a CBOT/CME combination in the hope that it will complete a merger with you.”
ICE on Thursday urged CBOT stockholders and members to reject the proposed sale to CME by voting “no” on July 9 (see Daily GPI, June 22). In a letter to CBOT stockholders and members Thursday, ICE urged: “Don’t sell CBOT short,” adding that if CBOT collectively votes for the CME deal it will effectively be leaving $1.3 billion on the table. “Your board of directors has agreed to a bargain basement sale of your company to the Chicago Mercantile Exchange in a transaction that would leave over $1 billion of your money on the table,” said ICE CEO Jeffrey C. Sprecher. “ICE’s merger proposal is clearly superior, both financially and strategically, yet your board has failed to act in your best interests and continues to recommend the inferior CME transaction.”
Through each revised offer from CME and ICE — and there have been many, CBOT’s board has firmly backed CME’s play. In mid-June, CBOT’s board unanimously reaffirmed its recommendation that CBOT Holdings shareholders vote in favor of the revised merger agreement with CME on July 9 (see Daily GPI, June 15).
In related news, the Chicago Board Options Exchange (CBOE) said Friday it is delaying its vote on the exercise rights agreement with ICE until after the July 9 CME/CBOT merger vote. In late May, ICE announced that it sweetened its deal for CBOT by reaching an agreement — conditional on the fact that ICE and CBOT merge — with CBOE, which would help settle a long-running legal dispute between the options trading exchange and cross-town rival CBOT (see Daily GPI, May 31).
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