Cbot says yes to CME

Chicago Board of Trade (Cbot) chairman Charles Carey says that shareholders have voted “overwhelmingly” in favour of a merger with the Chicago Mercantile Exchange (CME), paving the way for the creation of the world’s largest derivatives exchange.

Detailed voting results may not be available for days, but Carey told shareholders that "preliminary indications are that this thing is going to pass overwhelmingly."

The decision finally put an end to a see-sawing bidding war between the CME and the Atlanta-based electronic IntercontinentalExchange (ICE), which launched a hostile bid for the Board of Trade in March.

On Monday afternoon, ICE chairman and CEO Jeffrey Sprecher released an open letter to Cbot shareholders and ICE employees conceding defeat and thanking them for their help over the past few months.

“I want to thank you for your willingness to engage in a dialogue over the past several months and to consider our proposals,” he wrote.

Sprecher was unable to resist a final dig at his rival however, with a subtle aside to Cbot shareholders that they had undervalued themselves in voting for the CME bid. “Despite our disappointment in the outcome, our proposal has brought many benefits for both Cbot and ICE stockholders. For Cbot stockholders, ICE's involvement has created nearly $3 billion in additional value through our willingness to recognize the true worth of your company,” he said.

On Friday the CME presented a third revision of the offer which increased the exchange ratio from 0.350 to 0.375 shares of CME Holdings common stock for each share of Cbot Holdings common stock, reducing the gap between its bid and that of Atlanta-based Intercontinental Exchange from $800m to $100m.

The move was enough to persuade Cbot’s largest shareholder, Australia-based Caledonia Investments, to approve the deal.

Cbot shareholders were always known to favour a combination with their cross town rival. The CME claims that its final offer is now equal to the face value of ICE’s hostile bid because it carries fewer execution risks and more growth opportunities.

Yet ICE previously brokered a deal with the Chicago Board Options Exchange to end a long running dispute over Cbot members’ potential share in a flotation of the options business, a move which the CME has only partially addressed.

Earlier, the Cbot accused the Cboe of making a "unilateral attempt" to extinguish trading rights for its members following the Cboe’s move to grant only "interim" trading rights to full members of Cbot should a merger between Cbot and Chicago Mercantile Exchange Holdings be approved.

Cboe, the largest US options exchange, has been attempting to end the historic right held by some Board of Trade members to also trade options at Cboe, known as the exercise right.

Analysts now see ICE, a predominately electronic energy exchange, as a likely takeover target with NYSE Euronext being touted as a potential suitor. The New York exchange has made no secret of its desire to capture a slice of the booming derivatives market.