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Futures exchange makes bid for CBOT

March 16, 2007|From Bloomberg News

Intercontinental Exchange Inc., which handles 45% of global oil futures trading, made an unsolicited $9.9-billion bid for the Chicago Board of Trade's parent company to block a purchase by Chicago Mercantile Exchange Holdings Inc.

Intercontinental offered 1.42 shares for each CBOT Holdings Inc. share, valuing the company at $187.34 a share, or 13% above Wednesday's closing price. Chicago Mercantile's cash and stock purchase, agreed upon in October, was worth $8.9 billion, or $169.53 a share, as of Wednesday.

If the deal goes through, Intercontinental and CBOT would control a wider range of contracts than any other derivatives exchange, trading benchmark contracts on 12 of the 26 products in the Bloomberg CMCI commodities index. That's twice as many as any other exchange. They would trade oil, gas, cocoa, coffee, orange juice, gold and financial futures and options based on Treasuries, stocks and interest rates.

"This is the industry upstart making an aggressive move for the granddaddy of all futures exchanges," said Bruce Weber, a professor at the London Business School who tracks exchanges. "It's a very bold move." Intercontinental was established in 2000, and the Chicago Board of Trade was founded in 1848.

Commodity exchanges have surged in value, helped by growing hedge fund interest in trading energy, metals and other commodities and by speculation that there will be more mergers. Worldwide, exchanges have announced acquisitions or joint ventures worth more than $60 billion since the beginning of 2005.

CBOT shares jumped 17% on Thursday, rising $28.86 to $194.95. They have more than tripled since an initial share sale in October 2005. Shares of Intercontinental fell $3.83, or 2.9%, to $128.10, and Chicago Mercantile fell $31.09, or 5.5%, to $532.88.

Chicago Mercantile Chief Executive Craig Donohue declined to comment on whether he would raise his bid.

"We believe our merger is very attractive for shareholders and customers and provides substantial benefits because of the nature of our businesses," Donohue said Thursday at the Futures Industry Assn. conference in Boca Raton, Fla.

CBOT said in a statement that it would study Intercontinental's offer and would have no comment on it until the review was complete.

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