CME, Cbot deal given go-ahead

The DoJ’s antitrust unit confirmed on Monday that it has closed its investigation and found no evidence that a possible merger between the two exchanges could pose a threat to competition.

Despite the fact that both Chicago entities dominate exchange-based trading and clearing of options on futures in the United States, the DoJ’s decision was based on the bourses’ claim that the global derivatives and over-the-counter (OTC) market was the relevant area for scrutiny in the event of a merger.

“Throughout the review process we have remained confident of receiving approval from the Department of Justice, and today's announcement allows for the marketplace to have a clear view of our merger prospects," said CME Executive Chairman Terry Duffy. “We look forward to completing our transaction and integrating our two exchanges."

Nevertheless, the DoJ’s decision may invite a bidding war to erupt around Cbot before its shareholders meet on July 9 to decide whether to accept the CME bid or the advances of IntercontinentalExchange (ICE), which launched an unsolicited bid for the Chicago board in March.

While Cbot members are known to favour a merger with CME, increasing pressure is being placed on the CME to scale up its bid. CME's proposal, which was revised last month after pressure from CBOT shareholders believing that they were being shortchanged, offers 0.35 share for each share of CBOT stock. ICE's proposal is valued at about $11.2 billion based on Monday's closing share prices, compared with $10.3 billion for CME's offer.

In response, ICE resubmitted what it called an "enhanced" bid to the Cbot board, announcing that it would file a proxy statement opposing CME's planned acquisition of Cbot. ICE's current bid includes an exchange ratio of 1.42 ICE shares for each CBOT share, and a facility enabling Cbot shareholders to elect up to $2.5billion in cash in lieu of ICE shares.

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