IPO VIEW-Weighing CBOE's worth in drought-breaking IPO

* CBOE members vote to demutualize

* CBOE implied private value about $28.13/shr

* $25/shr minimum valuation

By Ann Saphir and Clare Baldwin

CHICAGO/NEW YORK, May 21 (Reuters) - The Chicago Board Options Exchange, the oldest and biggest North American options market, is heading toward an initial public offering that would end a four-year drought in flotations by U.S. financial exchanges.

CBOE members on Friday approved a plan to convert their member-owned operation to a shares-based company, paving the way for the long-awaited IPO. [ID:nN21216358]

Goldman Sachs (GS.N) is the lead underwriter, with a minimum per-share price of $25 for the offering currently scheduled for June 15.

CBOE Holdings Inc (CBOE.O) will refine the price range in coming weeks, with current seat prices, future earnings and price-to-earnings ratios at rivals all factors.

On the private market the shares are worth about $28.13 each, based on the most recent sale of a CBOE "seat" or membership on May 20 for $2.35 million. The implied per-share value accounts for a one-time pre-IPO dividend of $100,000 and the 80,000 shares into which each seat will be converted.

The actual value of the shares is likely higher. Exchange seats typically trade at a discount to their equivalent in shares, because they are less liquid.

The offering price is "definitely going to be higher than the minimum amount stated," said Thomas Caldwell, chairman of Toronto-based Caldwell Investment Management, with control of 54 CBOE memberships that will make it among CBOE's top shareholders after the restructuring.

"That would be handing people a bargain basement deal," said Caldwell. Caldwell bought a CBOE seat earlier this month.

At the $25 minimum, the CBOE IPO would raise about $292 million and give the exchange a market value of about $2.57 billion.

It would also give it a price-to-earnings ratio of about 28, lower than NYSE Euronext (NYX.N) but higher than Nasdaq OMX (NDAQ.O), IntercontinentalExchange Inc (ICE.N) and Chicago Mercantile Exchange parent CME Group Inc (CME.O), according to IPOdesktop.com President Francis Gaskins.

But the exchange's planned restructuring could provide additional dollars that would reduce that ratio significantly.

When the exchange demutualizes, memberships will be abolished and the CBOE will start collecting monthly fees for trading permits.

The CBOE does not quantify the extra income it expects to generate, but an analysis of fee schedules included in its IPO filings suggests the permits could generate as much as $90 million in new yearly revenue, more than half of which would likely drop directly to the bottom line.

Last year the CBOE earned $106.5 million on revenue of $426.1 million.

On the other hand, competition among exchanges is heating up. CBOE's market share of options traded in the U.S. fell from about 45 percent in 2000 to roughly 31 percent in 2009.

"If the stock market were in a bull market they could get away with (a high valuation), but it's not," Gaskins said.

U.S. stocks snapped a three-day losing streak on Friday but are still well down from highs last month, shaken by fears that efforts to stem Europe's debt crisis are too weak and that the global economic recovery could stall. [ID:nN21228918]

A bearish stock market makes it tougher for IPOs.

"The last 11 IPOs have all priced below the midpoint of their range," said Paul Bard, an analyst with Connecticut-based Renaissance Capital. "It's a buyer's market."

Nonetheless, two U.S. IPOs posted first-day percentage gains in the teens on Thursday and expectations are running high that CBOE's IPO will follow a pattern set by International Securities Exchange and the CBOT, whose 2005 IPOs were marked by early share-price surges. Both markets were later acquired by larger competitors at fat premiums.

An IPO "puts us in the game of having a currency to acquire other exchanges, or in the game to have a price established from which other market participants can decide if they want to take us over or not," Caldwell said.

Bard said exchange shares are attractive because the business is profitable and has a high barrier to entry.

A CBOE spokeswoman declined to comment on the IPO, but CBOE Chairman William Brodsky told members in a memo earlier this month that the minimum share price "is not representative of what we think CBOE's value is today." (Reporting by Ann Saphir in Chicago and Clare Baldwin in New York; Additional reporting by Doris Frankel in Chicago; Editing by Tim Dobbyn)