CME, CBOT Holdings revises agreement, CBOT gets bigger stake in new company, 10 board seats

By Lisa Kerner

Charlotte, N.C., May 11 - Chicago Mercantile Exchange Holdings Inc. and CBOT Holdings, Inc.'s revised definitive merger agreement gives CBOT Holdings shareholders 0.3500 shares of Chicago Mercantile class A common stock for each share of CBOT Holdings class A common stock, a 16% increase from the original deal.

The revised agreement also gives CBOT Holdings shareholders a 34.6% stake in the combined company, up from 31.2%, according to a company news release.

In addition, CBOT Holdings representatives will fill 10 of the 30 seats on the combined company's board of directors.

Under the terms of the revised agreement, CBOT Holdings will be allowed to pay any declared quarterly dividends of $0.29 per share in each of the third and fourth quarters of 2007 and a similar dividend in the first quarter of 2008 depending on the closing date of the transaction.

CBOT Holdings board and its special transaction committee unanimously reaffirmed their recommendation that CBOT Holdings shareholders vote in favor of the merger agreement with CME at a special meeting on July 9.

The board also determined that the unsolicited proposal submitted by IntercontinentalExchange, Inc. was not superior to the revised transaction. The Atlanta-based electronic energy marketplace's proposal called for the issue of 1.42 of its shares for each CBOT Holdings class A common share, valued at $187.34 per share, or roughly a 10.5% premium to the pending acquisition of CBOT Holdings by Chicago Mercantile Exchange agreed to in October, a previous IntercontinentalExchange news release stated.

"After a thorough review of IntercontinentalExchange and careful consideration of its proposal and the revised proposal from Chicago Mercantile, the boards of CBOT Holdings and the CBOT concluded that the revised merger agreement with Chicago Mercantile offered greater overall benefits for our shareholders and members," CBOT Holdings chairman Charlie Carey said.

"A combination with the Chicago Mercantile Exchange will create the most extensive and diverse global derivatives exchange, transforming global derivatives markets and creating efficiencies for customers and members while delivering significant benefits to shareholders.

"In addition, given our common clearing arrangement with Chicago Mercantile and the CME Globex electronic platform, we believe a combination with Chicago Mercantile presents significantly less integration risk than a combination with IntercontinentalExchange."

Tender offer

Shortly after the merger, Chicago Mercantile will make a $560 per share cash tender offer for up to $3.5 billion in common stock, or 12%, of the combined company. The tender offer will be in lieu of the cash election feature that was part of the original merger agreement, the release stated.

"The proposed tender offer is an effective way to return capital to CME Group shareholders, Chicago Mercantile chief executive officer James Parisi said in the release.

"Chicago Mercantile Exchange's balance sheet will remain strong and we expect our debt to carry a solid investment-grade credit rating."

Financing commitment

Lehman Brothers committed $2.5 billion in financing, which will be used, along with available cash balances, to fund the tender offer.

"We believe there is strong support for the combination from shareholders and members of both companies, and these revised terms and the cash tender offer makes our already compelling transaction even more attractive," Chicago Mercantile executive chairman Terry Duffy said in the release.

"Since we announced the original agreement last October, both Chicago Mercantile and CBOT have delivered strong financial performance and volume growth, underscoring the strategic rationale for bringing these two great Chicago institutions together. We look forward to completing this merger and realizing the full benefits for customers and shareholders of both companies."

CBOT Holdings operates the Chicago Board of Trade, a Chicago derivatives trading exchange, and the Chicago Mercantile Exchange is the first publicly traded U.S. financial exchange.

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