The Chicago Mercantile Exchange is likely to sweeten its bid for the Chicago Board of Trade , following a daring offer by an upstart energy exchange, Chicago grain traders said on Thursday.
IntercontinentalExchange Inc. earlier on Thursday offered to buy CBOT Holdings Inc. for $9.9 billion. The Chicago Mercantile Exchange, the largest U.S. futures exchange, announced last year an $8.96 billion deal to merge with the 158-year-old CBOT.
The merger of the cross-town rivals was pending approval from the U.S. Justice Department.
"Everyone expects CME to get into a bidding war," said Tom Barry, a CBOT wheat options broker.
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Jay Homan, a veteran CBOT trader and member, said: "It just feels good to be wanted. It presents one with choices."
The ICE offer values CBOT at $187.34 a share, compared with the $169.53 a share offered by CME, based on Wednesday's closing price.
"This already made the best St. Patrick's Day present any of us could have hoped for," said options trader Jon Najarian, who through a Trust owns seats at the Chicago Board Options Exchange, CBOT and the New York Stock Exchange.
"Today's $23 rally in CBOT (stock) means that every full CBOT member saw their net worth increase by $628,000 in early Thursday trading," he said. CBOT shares closed $28.86 up or 17 percent at $194.95 on the NYSE.
CME shares ended down $31.09 or 5.5 percent at $532.88.
ICE MOVE TO STALL PROPOSED CME/CBOT MERGER
ICE's move will likely hold up the proposed merger between the two largest U.S. futures exchanges, CBOT traders said.
They also expect a postponement of the April 4 meeting at which CBOT members were expected to vote on CME's proposal.
The CBOT said it would review the ICE proposal and that special CBOT shareholder and member meetings set for April 4 remain scheduled.
ICE, based in Atlanta, is an all-electronic marketplace for trading futures and over-the-counter energy contracts and has little overlap with the CBOT, whose biggest products are U.S. Treasury debt and agricultural derivatives.
"It does bring in a new player and add a little more confusion but it would mean going to all-electronic trading rather quickly. I'm not saying whether that's good or bad ... it's just the way it would be," said Shawn McCambridge, analyst for Prudential Financial.
"It's a little surprising, but there were concerns politically with the CBOT and CME merger in the area of an antitrust situation," McCambridge said.
There have been news reports that the Department of Justice has asked customers and competitors of the exchanges for signed statements of their objections to the deal.
The CME has said the requests were part of the normal process of a big merger.
ICE said CBOT shareholders would own 51.5 percent of the combined company which would be based in Chicago.
"The initial worry was the controlling interest. If ICE had control there were worries we'd go electronic as fast as they could," Barry added. "The CBOT 51 percent ownership is key."
The Chicago Mercantile Exchange's proposed acquisition of the No. 2 futures market was thought by many to be just months from completion.
A New York Mercantile Exchange energy trader said: "It will obviously make ICE/CBT a much bigger competitor for NYMEX."
A CME lumber trader in Chicago said of the ICE/CBOT merger: "I don't see it happening. We do all the clearing for them (CBOT). We're the bread and butter."
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