MERC buys CBOT

[southsider2k5]

Now if they were smart they would figure out away to buy the CBOE, CHX, and One Chicago so that they could be the first in the world to offer trading in options, futures, stock, and single stock futures all under one roof. No one could touch it. The Merc and CBOT are the two biggest pieces, the rest would be easy.

 

http://money.cnn.com/2006/10/17/markets/cb...sion=2006101709

 

CME to acquire CBOT for $8 billion

Chicago Mercantile Exchange to acquire rival, creating company that combines the two largest U.S. futures exchanges.

October 17 2006: 9:00 AM EDT

 

 

NEW YORK (Reuters) -- Chicago Mercantile Exchange Holdings Inc. said Tuesday it has agreed to acquire rival exchange CBOT Holdings Inc. for $8 billion in cash and stock in a deal that combines the two largest futures exchanges in the United States.

 

The announcement lifted shares of exchanges in early trading as investors braced for more consolidation - and growth - in the sector.

 

Together, CME and CBOT will be able to cut costs and serve a broader array of customers.

 

"It is very similar to eBay: The more customers and sellers and buyers you have, the more valuable the marketplace itself is," said Jeff Schape, chief investment officer at BB&T Asset Management in Raleigh, N.C.

 

The deal values CBOT, which went public just a year ago, at $151.27 per share, a 16.7 percent premium to its Monday closing price on the New York Stock Exchange.

 

Under the terms of the deal, CBOT shareholders will receive 0.3006 share of CME Class A common stock, or a roughly equivalent amount of cash, for each CBOT share.

 

The cash portion of the deal is subject to a $3 billion cap, the exchanges said.

 

Lehman Brothers and William Blair advised CME, while JPMorgan was sole adviser to CBOT.

 

CBOT Holdings Inc. (Charts) stock soared more than 19 percent on the news in pre-market trading, while shares of CME (Charts) jumped nearly 3 percent.

[NorthSideSox72]

This is causing quite a stir here today. This is huge.

 

Aren't CBOE and CHX already aligned anyway, in some ways? With CME setting up a Cleared FX Marketplace this year, moving them closer to the equities world (along with SSF's), I'd say that what you are suggesting is very possible. But not easy. CBOT and CME were different exchanges, but they shared a clearing house - and the clearing house end of things is more complicated than the venue side. If CBOE and/or CHX were to be added on, you'd need to settle out how to handle common clearing across instrument types like Eurex does, which will take some time and money.

[southsider2k5]

CBOT and CBOE were aligned, but it has been an ugly divorce. The CBOE came out of the board and because of that full board seats always contained the option of CBOE trading rights, and that was a big problem when the board wanted to go public.

[southsider2k5]

Evidently I am not the only one thinking merger fever isn't over in Chicago... the CBOE sold 7 seats at up to $1.5 million each yesterday alone. To give a little perspective it is a crazy month that sees 7 seats change hands there, plus the million and a half is an all-time record for seat price, topping even the prices during the internet craze.

[The Critic]

Stupid MERC.

They could've bought like FIVE YouTubes for 8 billion bucks.

Instead they get only one CBOT.

And you can't even watch 7-year-old Hispanic kids play Sepultura songs at the CBOT, like you can on YouTube.

Dumb.

[NorthSideSox72]

I think what we are seeing here is a war. I think Chicago, riding the enormous wave of increased volume in trading options and other derivatives in recent years, is making a run at New York as the financial center in North America. Think its a stretch? Think about this. When CME's FX marketplace goes live this year, Chicago will be the leading American market in every major type of traded investment instrument other than straight stocks (that means futures, options, equity options, fixed income and FX).

 

I think this is the beginning of Chicago declaring a business war, in the investment arena, against New York, London and Eurex.

[southsider2k5]

I agree with you totally. I have been saying for years the guys on these exchanges need to bury the grudge if they are going to make it through the 21st century. Let's face it the NY futures markets are complete garbage technologically, so really Chicago has no challenge in the US. They are looking at places like London and Tokyo for competition when it comes to futures markets. Like I said before, if they really want to take the next step, they need to pretty much merge all of the Chicago financial centers... The rest of the world couldn't come close to that monster.

[NorthSideSox72]

I agree with you totally. I have been saying for years the guys on these exchanges need to bury the grudge if they are going to make it through the 21st century. Let's face it the NY futures markets are complete garbage technologically, so really Chicago has no challenge in the US. They are looking at places like London and Tokyo for competition when it comes to futures markets. Like I said before, if they really want to take the next step, they need to pretty much merge all of the Chicago financial centers... The rest of the world couldn't come close to that monster.

Another thing Chicago should consider is taking on clearing and some other non-venue functions for some of the US straggler exchanges like KCBOT and MGE on the futures side, and the PSE on the securities side. Maybe you could even merge operations of CHX and PSE, and create a stock exchange with some teeth to compete with NY in that space. Try for a niche set of companies.

 

Continued innovation and new market spaces like the FXM will help as well. Swapclear failed at the LCH, but Chicago might be able to make that work.