Chicago Mercantile Exchange Holdings (NYSE/Nasdaq: CME) and CBOT Holdings, (NYSE: BOT) today announced that they have revised the terms of their merger agreement to provide additional value to all CBOT Holdings shareholders and a guarantee for holders of Chicago Board Options Exchange (CBOE) exercise right privileges (ERP).
The revised agreement has been unanimously approved by the boards of directors of both companies.
Under the terms of the revised agreement:
- All CBOT shareholders will receive a one-time cash dividend of $9.14 per CBOT share, or a total of $485 million. The dividend will be declared by CBOT before the close of the merger and paid immediately prior to the merger, after all the conditions to the merger have been satisfied. For a CBOT full member who holds the minimum 27,338 shares of CBOT Class A common stock currently required to exercise the ERP, the $9.14 per share dividend equates to $250,000 of cash value.
- In addition, eligible holders of ERPs will have additional choice regarding their exercise rights:
- The right to continue as a class member in the CBOE lawsuit with all of its substantial upside recovery potential and a guarantee, even if the lawsuit is lost or settled, of up to a $250,000 payment; or
- For members who do not want to pursue the lawsuit, the right to sell their ERP to the corporation for $250,000 payable following the closing of the merger.
- CME eliminated the $15 million cap on out-of-pocket costs (including attorneys' fees) incurred with respect to its obligations to prosecute the ERP litigation and defend against any other proceedings brought to challenge the exercise rights.
- A five-person committee of the Board of CME Group, including three CBOT directors, will have veto authority over rule changes, including member fees, that could materially impair the business opportunities of CBOT members. This veto authority will extend to the 2012 Annual Meeting of Stockholders, an extension of three additional years from the original merger agreement.
The combination of these enhancements substantially increases the value of the transaction for all CBOT Holdings shareholders and CBOT members.
"We believe that this one-time dividend to all CBOT shareholders and the unique ERP guarantee and purchase offer further improve the value of a merger with CME over the unsolicited ICE proposal," said CME Executive Chairman Terry Duffy. "CME and CBOT are committed to completing our merger and delivering superior value to shareholders of both companies. We recognize that different CBOT members may have different preferences for realizing value for their ERP rights. The combination of the substantial cash dividend for all CBOT shareholders and the more flexible and potentially more valuable ERP guarantee better addresses CBOT shareholders' interests and positions us to successfully complete our shareholder and member votes on July 9."
"We believe that the special dividend, the unique ERP guarantee and the enhancements to governance and member rights further improve the overall value of a merger with CME for all shareholders and members," said CBOT Chairman Charlie Carey. "A combination with CME 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."
"We believe the CBOE/ICE agreement fails to offer fair value to CBOT members," said Craig Donohue, CME Chief Executive Officer. "The cash dividend of $9.14 per share, or a total of $485 million, will provide immediate liquidity to all CBOT shareholders. For a CBOT full member who holds 27,338 CBOT Class A shares, this dividend equates to approximately $250,000 in respect of those shares. Additionally, our "Exercise Right" guarantee is superior because it allows ERP holders to either cash out early or remain in the litigation with a minimum $250,000 value guarantee and the potential for capturing the substantial upside, including the potential right to share equally with CBOE regular members in any CBOE demutualization. For illustrative purposes, if CBOE's fair market value is $3.3 billion and ERP owners and CBOE members share pro rata, the value of an ERP share is about $1.5 million."
"From a strategic and operational perspective, the combination with CME provides outstanding opportunities for growth, efficiencies and innovation, creating the leading global derivatives exchange in all major asset classes and one of the world's most liquid marketplaces," said CBOT President and CEO Bernard W. Dan. "We look forward to working with the CME management team to complete this transaction and to achieve the tremendous potential we believe the combined company will provide to its shareholders, customers and members."One-Time Cash Dividend
Under the terms of the agreement, CBOT will declare a one-time dividend of $9.14 per share of CBOT Holdings Class A common stock to shareholders of record as of a date prior to the close of the merger. The dividend will be conditioned upon the satisfaction or waiver of all of the conditions to the merger and paid immediately prior to the closing of the merger. In addition, the parties have agreed that appraisal rights will be available to CBOT Holdings shareholders in connection with the merger in accordance with Delaware law.ERP Guarantee
Under the terms of the revised agreement, effective immediately following the closing of the merger:
- An ERP holder who is also a B-1 member on May 29, 2007, the record date for the merger vote, may sell that ERP to the Board of Trade of the City of Chicago, Inc. (Exchange) for $250,000 in cash within 45 days of the closing of the merger. In the event that a final resolution in the ERP litigation results in eligible ERP holders receiving or retaining cash or property with a combined fair market value less than $250,000 per ERP, the CBOT will pay such eligible ERP holders the difference between $250,000 and the value of their recovery. This preserves for ERP holders a substantially higher payment, as well as trading rights if the litigation process produces a higher recovery, including a full interest in CBOE.
CME and CBOT noted that their guarantee for ERP holders did not require approval of CBOE or CBOE members, or the court or the class plaintiff in the pending Delaware litigation. The ICE/CBOE proposal, by contrast, would require the approval of CBOE members, the court and the class plaintiff in the litigation, creating significant uncertainty regarding, if or when, the proposed ERP consideration would be paid. The ICE/CBOE proposal is designed to extinguish the rights of ERP holders without the opportunity to preserve their rights to a full participation in a CBOE demutualization.
CME has also eliminated the $15 million cap on out-of-pocket costs (including attorneys' fees) incurred by CBOT with respect to its obligations to prosecute the CBOE litigation and defend against any other proceedings brought to challenge the exercise rights.Governance and Member Rights
A five-person committee of the Board of CME Group, including three CBOT directors, will have veto authority over rule changes, including member fees, that could materially impair CBOT member opportunity. This veto authority will extend to the 2012 Annual Meeting of Stockholders, an extension of three additional years from the original merger agreement.
In addition, the terms of the revised merger agreement extend the period during which designated CBOT directors serve on the Board of CME Group to the 2012 Annual Meeting of Stockholders.Tender Offer
The terms of the revised merger agreement continue to include an obligation on the part of CME to make a $3.5 billion cash tender offer at $560 per share shortly following the closing of the merger. Both CME shareholders and CBOT shareholders that receive CME stock in the merger will be eligible to participate in the tender offer. If the stock trades through the $560 level, CME is committed to return excess capital to shareholders.
Separately, CBOT Holdings (NYSE: BOT) today announced that its Board of Directors and special committees have carefully reviewed the revised proposal from IntercontinentalExchange, Inc. (ICE) and concluded that it is not superior to the revised CME merger agreement announced earlier today.
In addition, following the recent enhancements to the CME transaction terms, the CBOT Holdings Board of Directors and its special transaction committee have unanimously reaffirmed their recommendation that CBOT Holdings shareholders vote in favor of the revised merger agreement with CME on July 9.
"After a review of the new elements of the latest proposal from ICE, the Boards of CBOT Holdings and the CBOT concluded that the revised merger agreement with CME continues to offer greater overall benefits for our shareholders and members," said CBOT Chairman Charlie Carey. "Our Boards and advisors reviewed this latest proposal, considering both the short-term and long-term value to the Company, and found that it was not superior to the revised CME merger agreement."
"ICE's revised proposal did not adequately address important strategic and operational concerns, such as integration and execution risk," said CBOT President and CEO Bernard W. Dan. "A combination with the CME will create the most extensive and diverse global derivatives exchange while delivering significant benefits to shareholders and customers. Today, our common clearing arrangement with CME provides tremendous benefits to our market users. Going forward, this combination will allow us to better compete in a rapidly changing and technology challenging global environment."