The Chicago Board of Trade on Thursday appealed to members to back its agreed merger with the Chicago Mercantile Exchange, ahead of a key address to CBOT members by a rival bidder.
Jeff Sprecher, founder and chief executive of the Intercontinental Exchange, will brief the CBOT’s influential membership on the merits of his unsolicited proposal at a Chicago hotel on Thursday afternoon.
The CBOT continues to back a deal with the CME, which would create the world’s largest derivatives exchange. The value of the all-stock agreement remains $1bn below the terms proposed by ICE, based on midday prices on Thursday, though the 10 per cent gap is the narrowest since May 11.
Board of Trade directors have emphasised that price is not the only factor, despite the pressure from its members which forced the larger CME to sweeten its own bid earlier this month. It had insisted for weeks that such a move was unnecessary.
The FInancial Times revealed this week that the ICE had been asked by the CBOT to improve the financial and governance terms of its own proposal, but declined.
The leadership of the two Chicago exchanges has been accused of arrogance by some market observers, not least in limiting questions from CBOT members at an address by Merc executives in March.
Mr Sprecher is expected to exploit these views with an extended question and answer session on Friday, with Board of Trade members still unsure about the ability of the smaller ICE to swallow its larger target.
CBOT advisers said it could take more than two years to integrate the companies’ back-office systems, while ICE insists it will take 18 months.
The CBOT on Thursday highlighted these concerns in a letter distributed on its trading floor: “In combining CME and CBOT, a huge plus is that we expect to be able to integrate our companies quickly and efficiently.”
Board of Trade directors also questioned the pact announced on Wednesday between ICE and the Chicago Board Options Exchange, which sought to end a long-running spat over CBOT members’ potential equity interest in a flotation of the options exchange.
The CBOT had sought a merger with the options exchange last year as a way to solve the dispute, before breaking oiff talks to pursue a deal with the CME. The issue is now before a Delaware court.
CBOT members control over 80 per cent of the stock following the company’s 2005 flotation, and remain split over the merits of the competing offers and the option of remaining independent.
Some analysts said Friday’s meeting would raise further concerns among Merc executives that it might fail to win backing for its agreed bid. Some members note that the CME – which has not closed a takeover despite the flurry of consolidation in the exchanges sector – has had nine months to broker a settlement with the CBOE, but has opted to pursue a settlement through the courts.
CBOT directors have intensified their own talks with members and shareholders in recent days ahead of a July 9 vote on the proposed CME deal, with registration for applicable shares closing on Tuesday.
While CME offer continues to lag both the ICE proposal and the CBOT share price, its value is expected to rise if it secures clearance for the deal from the justice department. A decision is expected as early as next week.
The regulator has been examining the all-Chicago deal since last December amid a furious lobbying effort by some investment banks and intermediaries, which claim the enlarged exchange would damage competition.
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