The Chicago Mercantile Exchange increased its offer for the Chicago Board of Trade, raising the exchange ratio to .375 from .350 shares of CME Holdings for every share of CBOT Holdings. The increase raises the value of the CME bid to $208.38 per share from $194.49 (not including the $9.14 per share dividend to be awarded prior to closing) and is slightly higher than the Intercontinental Exchange (ICE) offer when you add in the dividend based on Thursday’s closing prices. The move was enough to get the largest shareholder of the CBOT, Caledonia Investment Pty. Ltd. of Australia, to back the deal. Caledonia, which owns approximately 7% of CBOT, had indicated earlier in the week that they would vote ‘no’ on the merger.
“We have always supported this merger from a strategic rationale and long-term growth perspective,” stated Caledonia Managing Director Will Vicars, in a CME release. “Now, with the CME’s latest enhancement, we fully endorse this merger and will vote in favor of this transaction,” he added.
CME Executive Chairman Terry Duffy, who was up all night negotiating the enhancement, which the CME described as its “best and final agreement,” is confident it will ensure approval of the CME/CBOT deal. Duffy said that while they were confident previous enhancements turned the tide, it was important to get the largest shareholder on board. “This vote was trending very highly in our favor and we were confident that we were going to get it, [but] the largest single shareholder of the Board of Trade was on the opposite side of the equation voting ‘no.’ It is always important to have the largest single shareholder supporting your transaction.”
Duffy said he was concerned so many shareholders had not yet voted. “The problem was that they had not voted, so we felt that the right thing for us to do was to go ahead and increase the exchange ratio knowing full well that we would have the support then of Caledonia and the fence sitters that were holding back their vote.”
The CME and CBOT plan to go ahead with the vote on Monday July 9 and do not expect any additional delays. “We believe that the SEC will declare us affective this afternoon and we will maintain our record date for Monday. We feel very confident in doing this. We have been advised that they will declare us affective and we will go forward on Monday,” Duffy says.
As of mid-afternoon Friday, the Intercontinental Exchange (ICE) had not responded to requests for a comment but their offer for the CBOT has moved back above the CME’s most recent enhancement based on Friday trading activity.
“I feel very good that we have answered all the concerns of the CBOT shareholders going back to the ERP, going back to the member protections, adding another director to the combined company from nine to 10, giving a dividend of $9.14, giving the ERP, giving the put on the ERP, given the up side and now with an exchange ratio of .3750, yes I feel very confident of the support of the CBOT shareholders,” Duffy concluded.
