Chicago Merc-ICE Bidding War Over CBOT Gets Nasty

The battle between the Chicago Mercantile Exchange (CME) and the IntercontinentalExchange (ICE) over the rights to buy the Chicago Board of Trade [CBOT] (BOT) turned downright nasty on Wednesday.

The CME has been courting the CBOT for some time, of course, and the two had long since agreed to merger. All that remained was for CBOT shareholder to vote on the deal – a move largely seen as a technicality. But ICE had different ideas, submitting an unsolicited counter bid on March 15 that knocked the CME on its heels. The ICE bid came in at $9.9 billion, far over the $8.8 billion offered by the CME, and ground the two-Chicago merger process to a halt.

Many expected the CME to increase its offer in response to ICE’s efforts, but the CME has stood firm. On Wednesday, Financial News reported CME CEO Craig Donohue’s description of the ICE offer; he said it was akin to “a minnow swallowing a whale,” according to coverage in Financial News. And despite the fact that ICE offered CBOT much more money, Donohue told analysts that the deal was “significantly inferior,” offering a “weaker currency” and poorer growth potential going forward.

ICE, for its part, told reporters it was “better at integrating acquisitions” than the CME, and that its offer was substantially superior to the CME proposal.

The CBOT’s board will review both proposals.

If the Atlanta-based ICE can pull off the deal, it would be quite a coup. The upstart electronic exchange recently completed the acquisition of the New York Board of Trade --- a move that has already paid dividends, as the ICE has expanded significantly into the market for “softs” commodities, pushing the exchange to record profits.

But there are all sorts of cultural and economic issues at stake here that might derail ICE’s efforts. For one, there’s that old Chicago pride: some CBOT members have expressed concern about East Coast interests moving into the Chicago market.

Far more important, however, are the issues surrounding electronic vs. floor-based trading. The CBOT is firmly a floor-based exchange, and whatever happens, the acquiring company is going to move some of the trading volume onto electronic markets. But ICE’s heritage is in electronic trading, while the CME comes from a floor-based background. Some CBOE members have expressed concerns that ICE would move quickly to shutter the floor.

Beyond that, the CME has tried to cast doubt on ICE’s ability to handle the transaction, noting, for instance, that it would have to scale up its clearing capacity (acquired in the NYMEX transaction) some 30 times in order to handle the increased flow.

Correction: An earlier version of this article inaccurately stated that the ICE recently acquired the New York Mercantile Exchange. The ICE actually acquired the New York Board of Trade.

Comments

[Sango]

Just a clarification, its NYBOT not NYMEX that ICE acqiured.

[StevenJohnson]

CME is an awesome Growth stock that some say may be the next Berkshire Hathaway without a Warren Buffett. This stock will continue to have really big growth. A very well run Company.