CBOT Shareholders Approve CME Merger

The shareholder decision could lead to the creation of the world's largest derivatives exchange, foiling ICE's competing bid.

Shareholders of CBOT Holdings Inc. on Monday approved a merger with Chicago Mercantile Exchange Holdings Inc., paving the way for the creation of the world's largest derivatives exchange.

Speaking at separate shareholder meetings, CME Chairman Terry Duffy and CBOT Chairman Charles Carey said shareholders had voted in favor of the deal, which was first announced in October but appeared to be in jeopardy in recent months because of a competing bid from Atlanta-based IntercontinentalExchange Inc.

The detailed voting results weren't immediately available, but Carey told shareholders that "preliminary indications are that this thing is going to pass overwhelmingly."

The merger, which could be completed as early as this week, will create an exchange that will have dominant positions in futures and options contracts tied to interest rates, stock-index futures, currencies and various commodities.

On Friday, CME upgraded its offer for the third time in an effort to ward off the competing bid from ICE. CME put forth what it called its "best and final" offer by increasing the share exchange component of its proposal to 0.375 from 0.350 CME share per CBOT share, providing CBOT with 36.2% of the combined company. The offer came as some shareholders said they would reject CME's previous bid in light of the more-lucrative offer from ICE.

The latest offer from CME, valued at $11.8 billion, convinced Caledonia Investments, CBOT's largest shareholder, to switch its vote and support the CME/CBOT combination. Other previously dissenting shareholders - most of whom had said they supported a merger with CME but wanted a higher offer - were also swayed by the final proposal.

In the end, CBOT shareholders supported the deal with CME over the competing bid because of the common clearing link between the Chicago exchanges, the complementary nature of the product offerings and the long-term growth prospects.

ICE, which entered the fray with a competing bid for CBOT in mid-March, opted not to raise its bid again after previously sweetening its proposal. ICE decided over the weekend it wasn't worth trying to pay more for CBOT, The Wall Street Journal reported Monday.

Analysts now see ICE, a predominately electronic energy exchange, as a likely takeover target. Analysts cite NYSE Euronext, which has made clear its aspirations to grow in the derivatives space, as a potential suitor.

Source: Wall Street Journal

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