IntercontinentalExchange (ICE) CEO Jeffrey Sprecher took the wooing of the Chicago Board of Trade (CBOT) directly to CBOT’s members Thursday and uncovered some favorable support. One week after it appeared that all hope might have been lost in its bid to acquire CBOT, ICE also sweetened the deal by reaching an agreement with the Chicago Board Options Exchange (CBOE) that could help settle a long-running legal dispute between the options trading exchange and cross-town rival CBOT.
Speaking to a capacity crowd of more than 400 in Chicago, the ICE chief executive outlined the benefits of the firm’s $11.2 billion acquisition offer over the rival $9.8 billion bid by the Chicago Mercantile Exchange (CME). He urged CBOT members to tell their board — which has been dismissive of ICE’s offer — what they want.
“Today, the Board of Trade is being prepared to be gutted by its cross-town rival, and I believe you have a superior alternative,” said Sprecher. “The ICE proposal is strong and it has been carefully considered. It provides the opportunity for members to have a voice in the destiny of the CBOT. It reinvigorates your exchange that has a 160-year history of being reinvented.”
While some CBOT members questioned ICE’s commitment to Chicago, others thanked Sprecher for pushing the acquisition price into the fair value range. “I think all of us are thankful that you got into the game because…you brought the [merger offer] to life,” a CBOT member said. “You brought us up to par or very close to par. We are a lot closer to par than it was before.” The member even went as far as to say that the 31-foot statue of Ceres, the Roman goddess of agriculture — which rests atop the CBOT building — should maybe be replaced with a statue of Sprecher.
Sprecher noted that the CBOT board could make the merger process a lot easier if it chose to. “So far, they haven’t chosen to entertain our proposal even though I continue to use the word ‘superior’ in defining it because I know it is a little jab at them. They continue to call it an unsolicited proposal, which is a little jab back at us. At the end of the day, I want you to know that it is your company, and you guys decide what to do. At least with respect to ICE, I’m prepared to go completely open book on this.”
CME first publicly approached CBOT with its $8 billion offer in October (see NGI, Oct. 23, 2006). In March, ICE proposed a $9.9 billion stock-for-stock transaction for CBOT (see NGI, March 19; March 26). CME’s revised bid Friday was valued at $9.2 billion.
Last month, CBOT Holdings board of directors and its special transaction committee unanimously reaffirmed their recommendation that CBOT Holdings shareholders vote in favor of the merger agreement with CME and also concluded that the unsolicited proposal submitted by ICE was “not superior” to the revised CME transaction (see NGI, May 14).
Under ICE’s agreement with CBOE, CBOT full members holding CBOE exercise rights would receive $500,000 in value for each right, or up to $665.5 million in the aggregate, to resolve the issues relating to the exercise rights in a manner that would make clear that following a merger between ICE and CBOT, full members of CBOT holding the required interests would be compensated for the loss of the exercise right.
Consideration would be paid equally by CBOE and ICE, with holders of exercise rights being entitled to receive cash and/or debt securities convertible into both stock of the newly combined ICE/CBOT Holdings and common shares of CBOE after its demutualization. The exclusive agreement between ICE and CBOE is contingent on the completion of the proposed merger of ICE and CBOT Holdings. ICE and CBOE also announced that they have entered into an agreement in principle for a broad commercial partnership, including technology and product development, and access to the distribution capabilities of each exchange.
ICE was quick to point out that the rival bid for CBOT by Chicago Mercantile Exchange parent CME Holdings provides no value for the exercise right eligibility of CBOT members, and “no certain resolution” to the ongoing issue.
“This strategic agreement would resolve existing litigation and uncertainty for both CBOT and CBOE members, while unlocking substantial value for CBOT members, many of whom remain CBOT Holdings stockholders,” said Sprecher. “It also frees CBOE to pursue a demutualization for the benefit of its members, and importantly, accelerates ICE’s ability to deliver value in options products for our stockholders and customers.”
On Thursday, Sprecher noted that the CBOE settlement agreement financed equally by ICE and CBOE offers “significant additional value” to full members with equity upside. Including the CBOE settlement consideration, full members would each receive an additional $1.2 million from the ICE offer, he said.
Sprecher also pointed out that ICE is a faster growing and more attractive company than CME, noting that from 2003-2006, ICE’s revenue grew 49.6%, while CME posted a 26% increase.
As for the transition of markets, Sprecher said ICE would be able to quickly integrate CBOT markets…noting that ICE had the New York Board of Trade connected in less than two months following its acquisition. He added that ICE is prepared to integrate and clear CBOT’s volume by 3Q2008
In talking about ICE’s stability, Sprecher noted that the company has been counted out a couple of times by various parties, only to stand strong each time. “About a year ago, many said that ICE’s platform didn’t stand a chance once Globex listed energy contracts,” he said. “Yet ICE’s volume growth since the launch has outpaced that of Nymex by a considerable margin.”
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