CME looks to seal CBOT deal

By Ros Krasny

CHICAGO (Reuters) - Chicago Mercantile Exchange Holdings CME.N on Friday sweetened its bid for the parent of the Chicago Board of Trade with a 16 percent increase to about $9.2 billion and improved terms, boosting pressure on rival bidder IntercontinentalExchange Inc. (ICE.N).

CBOT Holdings Inc. BOT.N said it was prepared to accept the CME's revised offer even though its value, based on Thursday's closing prices, is still below that offered by the upstart energy mart known as ICE, which values CBOT at about $10 billion.

In a statement, ICE said it was evaluating its options. "ICE continues to believe the combination of CBOT and ICE offers CBOT shareholders and members greater immediate and long-term value," the company said.

CME's new terms include giving CBOT more seats on the board of the combined company. CME also said it will buy back $3.5 billion in stock at $560 a share to boost the value of its offer. A $2.5 billion financing commitment from Lehman Brothers will help fund the tender offer.

"The revised merger agreement with CME offered greater overall benefits to our shareholders and members," said CBOT Chairman Charles Carey, noting that the decision came after a "thorough review" of ICE's terms.

Combining with CME "presents significantly less integration risk than a combination with ICE," Carey added.

CME and CBOT are the No. 1 and No. 2 U.S. futures exchanges, respectively. Historically bitter rivals, they have attempted to bury the hatchet in recent years with a series of cooperative agreements.

BREAKING THE ICE

The latest deal, carved out in a marathon session over the past few days, was designed as an "ICE breaker," to beat back ICE's challenge.

ICE's bid, announced in March, had this week valued the CBOT more than 25 percent higher than CME's original terms as CME's shares tumbled below $500 per share.

"The CME did the only thing it could and upped the ante," said Sang Lee, research director with the Aite Group, a consulting firm in Boston. "The ICE could certainly counter again, thereby continuing this consolidation dance."

But William Cline, CEO of consultancy Acai Solutions in New York, said the improved terms of CME's offer meant ICE would probably not make another bid.

"CME needed to close that gap. The magnitude of the difference was too much to ignore," Cline said. "CME did a better job in publicizing the cost synergies this time around ... the synergies with ICE are more speculative."

CBOT's board and its special transaction committee have reaffirmed their recommendation that CBOT shareholders vote in favor of the merger. That vote and a separate ballot by CME shareholders will take place on July 9.

"No question about it: there is hugely broad support for a CME-CBOT combination from the shareholders and members of both exchanges," said Terry Duffy, CME's chairman, said on a call with reporters.