| NEW YORK
NEW YORK IntercontinentalExchange Inc. (ICE.N) must mull a host of issues beyond price in determining its reaction to an increased $9.2 billion bid for CBOT Holdings Inc. BOT.N from Chicago Mercantile Exchange Holdings Inc.
ICE said it was evaluating its options after CME raised its takeover offer by 16 percent on Friday for the parent of the Chicago Board of Trade -- closing the gap between the sparring offers but still not matching ICE's $10 billion bid.
"The question ICE needs to ask itself is whether it is worthwhile to compete with someone that doesn't have to match them," said Ed Ditmire, analyst Fox-Pitt, Kelton in New York.
"I think it has become clear that on broadly similar terms, CBOT would favor CME."
The Chicago exchanges are old rivals who have turned chummy in recent years. Atlanta-based ICE, by contrast, came to the table unbidden and somewhat unknown.
CME's new bid values CBOT shares at about $186 based on Friday afternoon prices. ICE's bid has CBOT shares at about
CME and CBOT originally agreed to an $8 billion merger in October.
That deal was challenged in March by the surprise move from ICE, which offered a premium about 10 percent above CME's original offer. That created the unlikely prospect of the CBOT, founded in 1848, combining with an all-electronic exchange founded in 2000.
Despite the newly sweetened CME deal, lingering concerns over the concentrated power of a joint CME-CBOT could work in ICE's favor.
A CME-CBOT mega-exchange would control more than 85 percent of U.S. futures and options-on-futures volume, including nearly 100 percent in interest rate, equity index and foreign currency contracts.
The U.S. Department of Justice, currently reviewing the deal, is thought to be closely scrutinizing the market share issue.
"The DOJ is going to take a close look at it," said William Cline, chief executive of capital markets consultant Acai Solutions in New York. "It seems to me that both the CBOT and the CME have already raised their fees, and the strength of the combined entity suggests we will see more fee increases."
Broker-dealers have also expressed concern over a combined
The Futures Industry Association, a Washington-based lobbying group, has opposed the merger because of the concentration of futures volume.
Represented on the group's board are ICE advisers Morgan Stanley (MS.N), UBS AG UBSN.VX and Societe Generale (SOGN.PA), parent of Fimat -- firms which are among the largest futures brokers.
"It wouldn't surprise me if broker-dealers put pressure on ICE to raise its bid," said Sang Lee of Boston consultant Aite Group.
Fox-Pitt's Ditmire agreed that ICE had the flexibility to raise its bid but doubted how much such a move would be influenced by broker-dealers.
"The broker-dealer community in general has issues with the concentration that a CME-CBOT merger presents," Ditmire said. "So they might have a favorite in this contest. But I believe ICE will act in the interest of its shareholders."
ICE shares were up $4.45 or 3.3 percent at $139.35 in Friday afternoon trading. CME shares were up $34.36 or 6.9 percent at $532.31, and CBOT shares were up $5.87 or 3 percent at $199.87.
(Additional reporting by Ros Krasny in Chicago and Mark McSherry in New York)