After the news that the Chicago Mercantile Exchange had upped its bid for the Chicago Board of Trade by 16%, CME shareprices, which had been languishing under $500, jumped more than 7% to $532 by mid-morning. The CBOT stock was up slightly (BOT). Meantime, InterContinental Exchange shareprices were slightly higher after the CME’s bid, just a bit over 3% by mid-morning. (ICE)
In the frantic few days and weeks following the Intercontinental Exchange’s unsolicited bid for the Chicago Board of Trade there was a strange disconnect between CBOT members and the pronouncements of the Chicago Mercantile Exchange’s leadership.
CBOT members to a man pretty much said the CME would need to come through with a higher bid to match or surpass the value of the ICE offer and at the time CME Executive Chairman Terry Duffy coolly and calmly on several occasions rejected the notion of a higher bid, stating confidently that their current definitive agreement remained superior to the ICE bid.
Stranger yet was the apparent confidence of CBOT members in the face of such pronouncements. Several members mentioned to Futures in passing that they expected the CME to come through with a higher bid and heard it was already in the works. It was hard to determine whether or not the old Chicago trader grapevine was alive and well or whether this was simply wishful thinking on the part of members.
Apparently they knew something because today the CME and CBOT announced revised terms of the definitive agreement. CBOT Holdings Board of Directors and its special transaction committee have unanimously recommended that CBOT shareholders vote in favor of the new agreement.
Under the terms of the revised agreement, CBOT Holdings shareholders will receive 0.3500 shares of CME Holdings Class A common stock for each share of CBOT Holdings Class A common stock, an increase of 16% from the original agreement. Once the transaction is complete, current CBOT shareholders will own approximately
34.6% of the outstanding shares of the combined company, up from approximately 31.2% in the original agreement. According to the release, CBOT Holdings will also receive additional representation on the combined company’s Board of Directors, with 10 of the 30 seats.
As part of the revised offer, CME will make a cash tender offer for up to $3.5 billion, approximately 12% of the combined company, at a fixed price of $560 per share, to commence shortly after the closing of the merger.
In the release CBOT Chairman Charlie Carey said, “After a thorough review of ICE and careful consideration of its proposal and the revised proposal from CME, the Boards of CBOT Holdings and the CBOT concluded that the revised merger agreement with CME offered greater overall benefits for our shareholders and members.”
No where does it say when CBOT received the updated offer or how long they reviewed it, but from the beginning CBOT members were more comfortable with a link up with the CME, they just felt the original deal undervalued the CBOT and weren’t going to take less just because the Merc deal made more sense synergistically.
Carey added, “Our Boards and advisors carefully reviewed both the short-term and long-term value of both transactions. A combination with the CME will create the most extensive and diverse global derivatives exchange, transforming global derivatives markets and creating efficiencies for customers and members while delivering significant benefits to shareholders.”
CME’s Duffy said, “We believe there is strong support for the combination from shareholders and members of both companies, and these revised terms and the cash tender offer makes our already compelling transaction even more attractive.”
The CME and CBOT Holdings will file supplemental and amended proxy materials. Each exchange will hold a separate special meeting of shareholders and or member on July 9 to vote on the revamped agreement. Proxy cards previously executed and submitted by CME and CBOT Holdings shareholders and CBOT members who continue to hold their shares or memberships, respectively, on the new record date will remain valid.
The bears have been taking a beating and U.S. stock indexes have been charging ahead since the 800+ point correction in the Dow beginning with the 416 point drop on Feb. 27, reversed.
While the markets of the late 1990s, dubbed by Fed Chairman Alan Greenspan as displaying irrational exuberance, were somewhat understandable given the long period of time since anyone saw a bear market, the pain of the 2000-02 bear market should be relatively fresh in investors’ minds.
The bulls may argue that warning of an overheated market were prevalent throughout the 1990s and those that got out or got short too soon suffered just as much as those who jumped on the bandwagon near the top.That being said, there are some interesting and perhaps chilling similarities to the current market and past blow-off tops.
Futures contributor Garrett Jones has pointed out in the past that the four-year cycle low due in 2006 has not occurred (if you don’t count the July 2006 low). That was also the case in 1986, with the cycle low coming with a vengeance in 1987. In the upcoming June Futures Market Strategy article, Jones points out that the Dow Jones Industrial Average Index set a dubious record on April 27. It posted 19 of 21 up days. The second time in history that has occurred. The first time was in 1929, two months before the crash. In both cases the market held the 19 of 21 up day mark for a series of days. In 1968, a few moths prior to that downturn, the market set a similar mark with 18 of 21 up days. (by Daniel P. Collins)
Klein & Co. Futures, Inc. has asked the Supreme Court of the United States to reinstate a Federal lawsuit against the New York Board of Trade (Nybot) and its subsidiaries. The lawsuit stemmed from a scandal involving the manipulation of settlement prices on options in the Pacific Stock Exchange Technology Index by Norman Eisler who at the time was chairman of the New York Futures Exchange (Nyfe), a subsidiary of Nybot, which led to huge losses by Klein and forcing it out of business.
The lawsuit charging Nybot with failing in bad faith to enforce rules that protect participants in futures markets from manipulation and fraud was dismissed by a federal court. A similar lawsuit by a group of traders on Nyfe was dismissed and a lawsuit by hedge fund manager Jim Moore was dropped after the Commodity Futures Trading Commission would not divulge information to the court according to Moore.
The CFTC found in a 2004 order that Eisler had manipulated option settlement prices in the index; it found in a 2001 order that the Nyfe and Nybot violated the Commodity Exchange Act by not following its own market oversight rules.
Klein is being supported by the Futures Industry Association (FIA), which has filed an Amicus brief in support of the petitioner. The FIA states in the brief that, “The second circuit clearly erred, and destabilized the Nation’s Futures Industry buy stripping Futures Commission Merchants of their statutory cause of action against registered entities.” (by Daniel P. Collins)
There was some debate in our office about this blog name, Buy the rumor, Sell the fact.com. All the editors thought it was exactly what the futures and options industry and markets are about. Others thought the name too long; no one would understand “it.” Well, if you’re interested in the markets, you certainly will “get it.” This blog, a compilation by the editors of Futures Magazine, will provide insights and updates on current news, or information heard on the floor or through sources that we usually can’t fit in the monthly magazine. We know the business, we know the people, and now we can bring daily updates on some of the wild events happening in the futures, options and derivatives industry. Watch this space daily for these nuggets, and feel free to respond.
