War of Words Erupts Between CME and ICE Management: Is a CBOT Bidding War Next?

The Chicago Mercantile Exchange and IntercontinentalExchange, Inc. [ICE] traded claims that its was the best available offer for CBOT (the Chicago Board of Trade]. Merc Executive Chairman Terry Duffy played up his company's more established position in futures trading saying it "positions the combined CME/CBOT company as the leading exchange in global financial markets." Duffy also questioned ICE's claim that it could save $200 million for the combined companies, calling it "significantly exaggerated." Merc management plan to meet with CBOT in Chicago today to talk up their offer. A shareholder vote on the CME-CBOT merger was postponed to after April 4 to allow shareholders a chance to review the competing offers. ICE CEO and Chairman Jeffrey Sprecher responded that his company's all-stock offer is "clearly financially superior" - it's offering $9.9 billion for CBOT versus the $8 billion-plus being offered through CME's cash and stock offer. Sprecher went on to say "CME's rhetoric will not fool CBOT shareholders" adding that "an ICE/CBOT combination would give CBOT shareholders a majority stake in a faster growing, better positioned company." Most analysts still believe CME is a better choice to partner with CBOT - both companies are located in Chicago, have been negotiating for months and offer complimentary futures trading. But it is likely CME will have to up its bid to seal the deal. According to Bank of America analyst Chris Allen, CME will have to up its bid to at least $190 a share to beat out ICE and can afford to pay as much as $230 a share without diluting its per-share earnings.

Sources: Press Release, Wall Street Journal, MarketWatch (i), (ii), (iii), AP
Commentary: IntercontinentalExchange Makes Unsolicited Takeover Bid for CBOT; Shares Jump • The Market Is Warming To Intercontinental Exchange • Cramer's Take on ICE
Stocks/ETFs to watch: CBOT Holdings (BOT), Chicago Mercantile Exchange Holdings (CME), International Securities Exchange (ISE). Competitors: Nasdaq Stock Market Inc. (NDAQ), NYSE Group (NYX), NYMEX Holdings (NMX). ETFs: iShares Dow Jones US Broker-Dealer Index (IAI)

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