CME and CBOT to merge

The Chicago Mercantile Exchange and the Chicago Board of Trade are to merge, forming a new exchange valued at $25 billion.

Speaking to investors today, a spokesperson for the management of the two exchanges said: "Cost savings are driving the economics of the merger." The merger is expected to close in the middle of 2007, with improved earnings expected to start 12–18 months later. The combined exchange is expected to save $125 million a year, starting in 2009.Under the terms of the agreement, CBOT shareholders will receive cash (up to a total of $3 billion) and CME shares in exchange for their CBOT shares, at a ratio of 0.3006 CME shares per CBOT share. The merger would leave CBOT shareholders with 31% of the combined company, which will be called CME Group. CME shareholders will get the other 69%.Floor trading will be centralised at the CBOT trading floor, and electronic trading will move over to the CME Globex trading platform.Terrence Duffy, currently CME chairman, will become chairman of the merged entity, with CBOT chairman Charles Carey becoming vice-chairman. CME chief executive Craig Donohue will become chairman of the exchange, and his CBOT counterpart Bernard Dan will act as his special adviser for a year after the merger.The first links between the two exchanges were forged in 2003, when CME agreed to start clearing CBOT trades.The exchanges have not commented on whether layoffs can be expected, or whether the cost savings will translate into lower fees for traders on the exchange.

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