BOCA RATON, Florida (Reuters) - CBOE Holdings Inc, which operates the biggest U.S. options exchange, said on Thursday it is planning to raise as much as $300 million in an initial public offering.
The Chicago Board Options Exchange will pay a special dividend of $113 million before the IPO to its current stakeholders, and annual dividends of 20 to 30 percent of prior-year net income to shareholders after the IPO, the company said in filings with the Securities and Exchange Commission.
Members will be asked to approve the plan in May, and the IPO will be completed by the end of the second quarter, “pending favorable market conditions,” the exchange said in a memo to members.
The CBOE is the last of the major old-line North American exchanges to go public, trying for years to convert from a member-owned structure to a share-based company, but stymied by a long-running legal tussle over ownership rights with CME Group Inc (CME.O)-owned Chicago Board of Trade.
A resolution last year to that dispute, which gave some CBOT members a collective 18 percent stake in the CBOE, paved the way for the announcement.
“It was a long time coming,” said CEO William Brodsky after the filing, on the sidelines of the annual Futures Industry Association meeting. As a publicly traded company, CBOE will have more strategic flexibility, he told members in the memo on Thursday.
The conversion to a share-based company -- known as demutualization -- requires approval of CBOE’s 930 members, many of whom in the course of the conversion stand to lose lucrative incomes from leasing their memberships to traders, who use the memberships to access the exchange.
The special pre-IPO dividend to shareholders is designed to help compensate for that loss.
Brodsky’s challenge will be to convince members they will gain more than they lose by supporting any IPO.
“Given the diversity of our membership, there are bound to be differing opinions over some of these issues,” Brodsky told members in the memo. “We assure you, however, that each decision on the road to demutualization has been guided by what is best for the long-term success of CBOE and with the objective of maximizing value to our owners.”
The exchange will use proceeds from the IPO to buy back shares from its former members in two phases, within 30 to 120 days of the IPO, it said. Members get shares in exchange for their memberships in the demutualization.
Later on Thursday, Brodsky and other CBOE officials will meet with about 25 Florida-based members. A general members’ meeting will be held on March 18 to discuss the IPO plans.
Chuck Sorsby, a CBOE seat owner who is supportive of the plans, said he was surprised by what appeared to be a generous dividend policy.
“I suspect there will be support for this,” he said.
As part of the settlement with the Board of Trade over ownership rights, the CBOE must make a cash payment of $300 million by December 2.
The company had net income of $106.5 million last year on $426.1 million in revenue, down from $115 million earned on $416.8 million in revenue a year earlier.
The IPO will be underwritten by Goldman Sachs.
Reporting by Ann Saphir and Jonathan Spicer; Editing by James Dalgleish and Matthew Lewis