Investor says CBOE could fetch $3.5 billion

NEW YORK (Reuters) - Prominent exchanges investor Thomas Caldwell said on Wednesday that the Chicago Board Options Exchange could fetch as much as $3.5 billion once it settles a long-standing legal dispute that has delayed its plans to become a shareholder-owned exchange.

Caldwell, the chairman of Caldwell Financial LLC, which offers a mutual fund specializing in exchanges for Canadian investors and has stakes in CBOE, NYSE Euronext (NYX.N) and CME Group Inc (CME.O) and other major exchange operators, said that CBOE, the largest options market in the United States, could entice a major suitor, but at a steep price.

"CBOE is a big exchange. It's a prized property, so when it becomes available, you know everyone will be scratching their heads and sharpening their pencils and looking at it," Caldwell said at the Reuters Global Exchanges and Trading Summit in New York.

Caldwell's high net worth fund holds 11 CBOE seats.

According to CBOE's web site, one of CBOE's 930 seats sold for $1.77 million last week, meaning the option mart is worth at least $1.7 billion.

But because CBOE is so dominant in its industry -- its market share was 31.9 percent from January to April, far ahead of its nearest rival, and it has proprietary products such as its well-known VIX Volatility Index .VIX, it should command a large premium.

"It could be as much as $6 billion, but $3 billion to $3.5 billion would be a base of some kind," Caldwell said.

"It is a unique property."

CBOE is awaiting a Delaware Court decision to approve an agreement with members of the Chicago Board of Trade, now part of CME Group Inc, that would end years of legal wrangling over who was entitled to an equity stake in the options exchange spun off by CBOT in the 1970s.

Court approval would allow the CBOE to continue as a for-profit shareholder firm, conduct an IPO, or consider a merger with another entity.

But part of the problem for CBOE, if it chooses to be acquired, is that the pummeling that exchanges' stocks have taken in the past year could limit a suitor's ability to buy it.

The Dow Jones Global Exchanges Index .DJGEX, which tracks exchanges stocks, has fallen by nearly half in the past year.

"The problem is that capital base of the other exchanges has shrunk so much, it's more difficult for them," Caldwell said.

(Reporting by Phil Wahba; Editing by Gary Hill)