ICE sweetens Cbot offer

Source: IntercontinentalExchange

IntercontinentalExchange (NYSE:ICE) today announced that it has resubmitted its merger proposal to the Chicago Board of Trade (NYSE:BOT), with a number of enhancements.

ICE also said it intends to file a preliminary proxy statement to oppose the proposed acquisition of CBOT Holdings by the Chicago Mercantile Exchange (NYSE:CME). ICE intends to solicit votes against the proposed CBOT/CME combination at the CBOT stockholder meeting scheduled for July 9, 2007 after the SEC's review of its preliminary proxy statement is completed.

Under ICE'S enhanced proposal:
  • CBOT Holdings stockholders can now elect to receive cash in lieu of ICE/CBOT shares in an amount equivalent to the value implied by 1.42 ICE shares per CBOT share at the close of the ICE/CBOT merger. The total amount of available cash consideration will be a maximum of $2.5 billion, with individual cash elections subject to proration in the event that the maximum amount of cash available is oversubscribed.
  • Current CBOT B-1 and B-2 members would also benefit from pricing protections on trading fees. Under the enhanced merger proposal, CBOT trading fees for B-1 and B-2 members would generally not increase from current levels prior to the 2011 Annual Meeting of Stockholders. Additionally, CBOT trading fees for B-1 and B-2 members would generally benefit from discounts of 50% or more from the lowest trading fees available to non-members at least until the 2014 Annual Meeting of Stockholders.
  • The previously announced agreement with the Chicago Board Options Exchange (CBOE) regarding CBOT members' CBOE exercise rights is included in the revised proposal, and has been amended so the total consideration of $665.5 million, payable jointly by ICE and CBOE, would be divided by the number of CBOT Full Members possessing the required interests, as defined below, as of the consideration record date. Accordingly, each exercise right will be valued at a minimum of $500,000 per Full Membership, with the final value of each right being determined by the number of Full Memberships assembled. If fewer than 1,331 Full Memberships are assembled, the value of each would be greater thaner than $500,000.
  • Full Members will also have greater flexibility to elect the form of consideration they prefer among debt securities convertible into the stock of CBOE following its demutualization or other conversion event, cash, and debt securities convertible into stock of the newly combined ICE/CBOT. They can elect 1) all debt securities convertible into the stock of CBOE following its demutualization or other conversion event, 2) all cash, or 3) all debt securities convertible into stock of the newly combined ICE/CBOT. These choices are subject to a maximum of $332.75 million in aggregate value of debt securities convertible into stock of the newly combined ICE/CBOT and a maximum of $332.75 million in aggregate value of debt securities convertible into stock of CBOE following its demutualization or other conversion event. The election of debt securities of both ICE and CBOE are subject to proration in the event that the maximum amount of available securities is oversubscribed, with any remainder to be paid in cash.
  • CBOT will be permitted to pay pre-closing dividends of $0.29 per share for the third and fourth quarters of 2007 and a dividend for the first quarter of 2008 based on earnings during that period.
  • At least 5 CBOT designees would remain on the ICE board through the 2014 Annual Meeting of Stockholders.


Jeffrey C. Sprecher, Chairman and CEO of ICE, said, "This enhanced proposal demonstrates ICE's continuing commitment to address the needs of CBOT stockholders and members. Over the past few weeks, we have had productive discussions with a wide spectrum of stakeholders. Based on this input, we have devised an enhanced proposal that we believe is extremely compelling to stockholders and members. Our proposal also resolves important issues that are not addressed by the CME agreement that CBOT stockholders will have the opportunity to vote against on July 9th."

Sprecher continued, "We believe that the CME acquisition of CBOT is not in the best interest of CBOT stockholders. By filing our preliminary proxy materials, we are signaling our intent to actively assist CBOT stockholders and members to oppose the inferior CBOT/CME combination so that CBOT stockholders can send a clear message to their Board that they want proper consideration given to the clearly superior ICE proposal."

Based on today's closing prices, the ICE offer is valued at $211.55 per CBOT Holdings share. This calculation of value per share does not include the additional consideration offered to CBOT Full Members related to the treatment of the CBOE Exercise Rights, which ICE calculates to be a minimum of an additional $18.29 per CBOT Holdings share. The revised CME proposal represents only $191.98 per CBOT Holdings share. The ICE offer represents a 10.2% premium to the CME proposal and represents over $1.0 billion of additional value to CBOT shareholders.

Exercise Rights Agreement

On May 30, 2007, ICE and CBOE entered into an agreement in an effort to resolve issues relating to the CBOE exercise rights. The details of the revised agreement are as follows:
  • ICE and CBOE would each provide up to $332.75 million in consideration (or total consideration of $665.5 million) to fund payments to CBOT Full Members possessing the required interests to exercise a CBOE exercise right.
  • ICE and CBOE would each provide a CBOT Full Member possessing the required interests for the exercise of a CBOE exercise right the choice of one of the following: (1) debt securities convertible into the stock of CBOE following its demutualization or other conversion event, (2) a cash payment, or (3) debt securities convertible into stock of the newly combined ICE/CBOT. If Full Members elect debt securities of either CBOE or ICE/CBOT that, in the aggregate, exceed these maximums, those electing the debt securities will receive a pro rata share of the available debt securities, with the remainder of the consideration paid in cash.


The transactions contemplated by the ICE/CBOE agreement are contingent on completion of the proposed merger of ICE and CBOT Holdings; approval by a majority of CBOT Holdings stockholders, a majority of the voting power of the CBOT Series B-1 and B-2 members, and a majority of CBOE members; and are conditioned on regulatory and judicial approvals. To be eligible for the above consideration, a CBOT Full Member must possess: (1) 27,338 shares of Class A Common Stock, par value $0.001 per share, of CBOT Holdings, Inc. (2) a Class B, Series B-1 Membership of the Board of Trade of the City of Chicago, Inc. and (3) a CBOE exercise right privilege (ERP). For purposes of this determination, a CBOT Full Member will be deemed to "possess" the required interests through possession by ownership, lease, or, in the case of shares, by pledge or assignment agreement relating to such shares where the owner of such shares is precluded from selling or transferring the shares during the term of such pledge or assignment agreement. The merger of ICE and CBOT Holdings is contingent upon approval by CBOT of the ICE/CBOE Agreement and the approval by a majority of the voting power of the CBOT Series B-1 and B-2 members.

Cash Election

In addition, under the agreement, each CBOT stockholder would have the option to receive cash consideration in an amount equal to the implied value of 1.42 ICE shares at the close of the ICE/CBOT merger. The total cash consideration in the transaction has been set at a maximum of $2.5 billion.

If CBOT stockholders elect to receive more than the maximum cash available, stockholders who elected to receive cash will be subject to pro ration. If no CBOT stockholders elect to receive cash, the CBOT stockholders would own approximately 51.6% of the combined company. If all CBOT stockholders elect to receive cash, CBOT stockholders would receive approximately $47.12 per share in cash and own 45.3% of the combined company. ICE intends to use any remaining cash not utilized under the cash election to repurchase ICE shares after the close of the transaction.

Preliminary Proxy Statement

ICE intends to file a preliminary proxy statement to assist CBOT stockholders and members in opposing the proposed acquisition of CBOT Holdings, Inc. by CME.

As will be fully detailed in its preliminary proxy materials, ICE believes that CBOT stockholders and members should reject the proposed CBOT/CME combination because:
  • A vote "AGAINST" the proposed CME merger preserves the opportunity of CBOT's stockholders to receive the significant premium for their shares contemplated by ICE's proposal which, if consummated, provides significantly greater financial value than the proposed CME merger.
  • A combination of ICE and CBOT is superior to the proposed CME merger and would offer substantial benefits to the stockholders of CBOT and members, including higher current value, stronger historic stock performance since January 1, 2006, opportunity to share in future growth, and strong management.
  • ICE has clearly demonstrated its plan to successfully integrate the technology and clearing operations of CBOT by the end of 2008 and disagrees with CBOT's assessment.
  • A vote "AGAINST" the proposed CME merger preserves the heritage of CBOT.
  • A vote "AGAINST" the proposed CME merger sends a strong message to CBOT's Board that CBOT stockholders want the opportunity to accept the ICE proposal.


Read Ice's letter to the Cbot board here:Download the document now 25.2 kb (PDF File)

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