ICE repeats call for Cbot stockholders to reject CME deal
02 July 2007 | 1569 views | 0
IntercontinentalExchange, Inc. (NYSE: ICE) today sent the following letter to Chicago Board of Trade (NYSE: BOT) stockholders and members urging them to reject the proposed sale to the Chicago Mercantile Exchange (NYSE: CME):
July 2, 2007
ICE'S PROPOSAL REMAINS SUPERIOR FINANCIALLY AND STRATEGICALLY
WHAT DO WALL STREET ANALYSTS KNOW THAT YOUR BOARD WON'T TELL YOU? CME NEEDS THIS DEAL MORE THAN YOU DO, AND CAN AFFORD TO PAY SIGNIFICANTLY MORE
THE CME DEAL RECOMMENDED BY YOUR BOARD SUBSTANTIALLY UNDERVALUES CBOT AND LEAVES HUNDREDS OF MILLIONS OF DOLLARS OR MORE ON THE TABLE
VOTE "NO" ON JULY 9 AND SEND A MESSAGE TO YOUR BOARD TO NEGOTIATE A DEAL THAT FAIRLY VALUES CBOT AND ADEQUATELY REWARDS STOCKHOLDERS
Dear Chicago Board of Trade Stockholder/Member:
Your Board and CME management are asking you to believe that accepting their inferior offer is in your best interest and your only viable option. However, the facts, as well as comments by several industry analysts, should make you reconsider what is actually right for the future of the Board of Trade. ICE is offering you a superior deal - both financially and strategically. In addition, ICE offers stockholders a stronger currency with more upside.
Don't fall for low-road scare tactics.
Since January 2006, ICE's share performance has exceeded that of the CME by every relevant metric. And today, despite the fact that ICE is a significantly faster growing company, ICE and CME's P/E ratios are in line. In addition, ICE has a high-quality electronic trading and clearing infrastructure that we are rapidly scaling. Our planned integration is highly achievable as ICE's technology team has successfully scaled its execution technology by a factor of 100 times over the past two years to meet rapid growth and the addition of new products to our markets. Based on extensive technical reviews, we are confident we can transition the Board of Trade to our clearing solution quickly, seamlessly and on schedule.
The fact is that CME needs this deal far more than you do.
CME's current valuation and strategic position depend on a successful merger with CBOT, but CME remains unwilling to commit to pay what analysts believe it can afford, or even what ICE has already placed on the table. CME's bid, which valued CBOT Holdings at $196.17 per share as of Friday June 29th, remains lower than your stock price of $206.60, and significantly lower than what analysts and the overall market have pegged as the fair value for CBOT shares.
By voting NO on July 9th, you will send a clear message to your Board that you will NOT settle for the current CME deal, which significantly undervalues your company. Make your Board negotiate a better deal from CME that appropriately values your business, or consider ICE's superior proposal.
Did you know that ... ?
1. CME's own analysts say it can afford to pay more and CBOT stockholders agree:
"According to our analysis, CME could raise the BOT offer up to 0.40 shares of CME (implying $223 a share for BOT) and still make the deal accretive on a 2008 basis."*
- Bank of America / June 12, 2007
"[CME] could pay $220 per share for CBOT and still make the deal 5% accretive to 2008 earnings assuming a mid-year 2007 close and relative to our standalone estimate of $17.50."*
- Keefe, Bruyette & Woods, March 23, 2007
Even CME's analysts recognize that CME can afford to pay more to acquire CBOT. Despite that fact, CME continues to low-ball CBOT stockholders in an attempt to win the CBOT on the cheap without paying fair value, let alone a control premium. CME's current proposal is valued at $196.17 per CBOT share, or hundreds of millions of dollars less than the ICE proposal of $209.95 per share and well below CBOT's current share price. You need to ask your leadership and Board why they are not demanding that CME pay what experts believe and CME knows your company is worth.
"Chicago Merc executives were told that they needed to raise the offer to 0.4 shares of stock for each CBOT share from the current 0.35 shares."*
- Bloomberg News / June 29, 2007
Your Board doesn't want to discuss the fact that many stockholders have indicated that they have already voted against the CME deal because it undervalues CBOT. Instead both CBOT and CME management have attempted to market their transaction based on an inflated and uncertain value of $560, which already reflects merger synergies from your company, meaning you are being paid with your own synergies. The truth is that they are simply not paying any premium for your company.
2. CME would stand to lose $1.2 billion in market capitalization if it loses CBOT's clearing business:
"In a report published on Friday, [Sanford C. Bernstein] said the loss of clearing revenue to CME if CBOT Holdings Inc. merged with IntercontinentalExchange Inc. would be about $1.2 billion."*
- Reuters / June 29, 2007
CME's future revenue expectations, and therefore stock price, are inflated by the assumptions that the deal with CBOT will be approved. Absent the clearing revenue and other synergies brought to CME by the Board of Trade, investors would likely conclude that its shares are significantly overpriced.
3. CME stockholders will benefit TWICE as much as CBOT stockholders from CBOT's future growth:
Existing CME stockholders would own approximately two-thirds of a combined CME/CBOT, while you would only own one-third. So CME stockholders will benefit twice as much from CBOT's continued strong and increasing growth as you will. Shouldn't CME stockholders pay you a significant premium for taking most of the upside that would otherwise be yours?
CME wants you to believe their deal is somehow worth $260. Why then are they only offering you $196 per share?
The following is an actual, rather than fictional, financial comparison between the CME and ICE proposals. It compares the two deals purely based on the true components of the transaction today: exchange ratio, special dividend and additional value to full members with the required interests.
YOU ONLY HAVE ONE OPPORTUNITY TO PREVENT YOUR BOARD FROM SELLING YOU SHORT:
Vote "AGAINST" The CME/CBOT Transaction
If you believe that CBOT is worth a higher price than what your Board is asking you to sell it for, you only have ONE CHANCE to be heard. You must vote NO on July 9th. If the transaction is approved on July 9th, you will forever lose the opportunity to review ICE's proposal for the Board of Trade. A NO vote represents a new beginning for CBOT stockholders to realize the true and fair value for a strong, vibrant and rapidly growing company.
Jeffrey C. Sprecher
Chairman and Chief Executive Officer
VOTE AGAINST THE CME PROPOSAL TODAY!
Even if you have already returned a proxy you have every right to change your vote. Only your latest dated vote will count. We urge CBOT Stockholders to vote AGAINST the CME's below-market offer.
Please refer to your proxy card for easy instructions on how to vote by telephone, Internet or mail. If you have any questions, please contact:
Innisfree - M&A Incorporated
Toll-Free at: (877) 800-5187
* Permission to use quotations as proxy soliciting materials was neither sought nor received