Merc sweetens bid for CBOT by 7 percent

The nine-months long Merc/CBOT merger saga took a new turn on Friday when Chicago Mercantile Exchange's parent company announced that it has sweetened its offer by 7 percent to acquire the Chicago Board of Trade, the third increase in a three-month battle with Atlanta-based Intercontinental Exchange.

Chicago's two major futures exchanges, Chicago Mercantile Exchange Holdings Inc. (CME) and Chicago Board of Trade Holdings Inc. (CBOT) first announced in October that that have entered into a definitive deal worth $25 billion to merge the two organizations to form the most extensive and diverse global derivatives exchange.

Chicago Mercantile Exchange (CME), the largest futures exchange in the United States, at the time said it will pay $8 billion for its sibling Chicago Board of Trade (CBOT), the world's oldest futures and options exchange.

Now, the CME, or simply called the Merc, has raised its takeover bid from $8 billion to $11 billion, in order to accomplish its dream to make Global Exchange.

Under the new bid, CME would give CBOT shareholders 0.375 share of its shares for each CBOT Holdings share, up from 0.35 a share in the previous offer, thus raising the value of its offer by 7.1 percent.

With the increased bid, CME apparently has also succeeded in persuading Caledonia Investment, the Chicago Board of Trade's largest shareholder, to drop its opposition and support the Chicago Merc bid.

CME’s move comes three days before the CBOT shareholders are set to vote on the deal to combine the two Chicago institutions and form a global company.

The combined company, which is expected to transform global derivatives markets, creating operational and cost efficiencies for consumers and exchange subscribers, while delivering monumental benefits to shareholders, will handle about 9 million futures contracts per day valued at about $4.2 trillion and is expected to save $125 million annually in the second year after the deal completes, mostly through cuts in administrative and technology areas, the two companies have said.

CME offers futures and options on futures mainly in interest rates, equities, foreign exchange, commodities, energy and alternative investments. The exchange managed $47.2 billion in collateral deposits at June 30, 2006, including $4.6 billion in deposits for non-CME products.

CBOT provides a diverse mix of financial, equity and commodity futures and options-on-futures products. Using superior trading technology in both electronic and open-auction trading platforms, CBOT provides premier customer service to risk managers and investors worldwide.

CBOT shares rose $17.85, or 8.7%, to $224 in New York Stock Exchange composite trading, while shares of CME surged $19.11, or 3.4%, to $574.80 and ICE shares gained $4.28, or 2.8%, to $156.09.