IntercontinentalExchange and Chicago Mercantile Exchange Fight for CBOT

Jun. 18, 2007 7:14 AM ETCME, BOT, ICE
Victor Cook
66 Followers

On June 14, 2007, the New York Times DealBook reported the latest development in the Exchange War between the IntercontinentalExchange, Inc. (ICE) and the Chicago Mercantile Exchange Holdings (CME) over a property they both want:

As two of the Chicago Board of Trade’s rivals continue duking it out over the exchange, its board of directors spoke up on Thursday: it favors the Chicago Mercantile Exchange.

But the IntercontinentalExchange seems to want the Chicago Board of Trade (BOT) badly. Dow Jones MarketWatch reported late Tuesday June 12 that the company had enhanced its offer. It now represents a 10.2% premium over Chicago Mercantile Exchange (CME) bid. And,

ICE also said it plans to file a preliminary proxy statement to oppose the proposed acquisition of CBOT Holdings by the Chicago Mercantile Exchange (CME) and solicit votes against the proposed CBOT/CME merger at the CBOT shareholders meeting scheduled for July 9.

Given the reported challenges faced by ICE in shifting CBOT's action to its New York Board of Trade platform, as well as the premium it has already offered to pay for the property, one wonders what's behind this ambitious strategy. CEO Jeffrey Sprecher says "It's a growth play." Is he right?

The Three Parts Of A Dollar

To understand the motives behind an audacious strategic move like Mr. Sprecher's, it's useful to start with the enterprise marketing concept of "the three parts of a dollar." Why? Because it divides the sales dollar up into three mutually exclusive and exhaustive parts that define, with the use of financial accounting data, the company's underlying business model.

3_parts_p01_2

Cost Of Goods Sold

The "cost of goods sold" at the Chicago Board of Trade in 2006 was 0.24%. Does this mean the company's gross margin is over 99%? Yes. Think of these three companies as retailers of risky financial products to

This article was written by

66 Followers
Victor Cook, Ph.D. is Emeritus Professor of Management at Tulane University. In addition to his university service, Cook has experience in senior management positions. Among those he has been for over thirty years, president and lead designer at thestyle.com Professor Cook began his academic career as a doctoral fellow at the Marketing Science Institute and Lecturer at the Wharton School. He moved to Cambridge, MA as Associate Director of Research when MSI was acquired by the Harvard Business School. He served six years as an Assistant Professor of Marketing at Chicago Business School before joining the Tulane faculty. Visit his blog: customersandcapital.com.

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Related Stocks

SymbolLast Price% Chg
CME--
CME Group Inc.
BOT--
CBOT Holdings Inc.
ICE--
Intercontinental Exchange, Inc.

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