The Bovespa Holding SA ("BOVESPA Holding") and the Brazilian Mercantile & Futures Exchange-BM&F SA ("BM&F") announced today that they have agreed to integrate their activities to create one of the world's leading fully-integrated, multi-asset class exchange groups (the "New Exchange").
New Exchange will bring together two highly efficient and complementary businesses, coupling the strengths of BOVESPA Holding in cash equities and equity derivatives with those of BM&F in financial and commodity derivatives, spot FX and securities markets. New Exchange will become the world's third largest exchange and the second largest in the Americas in market value. New Exchange will be Latin America's leading equity and derivatives markets, representing approximately 80% of the region's average daily equity turnover and a daily notional futures trading volume of USD67 billion. It will also offer:
- One of the world's broadest product offerings, including the region's largest equity market and a full set of financial, commodity, equity and OTC derivatives, as well as structured transactions and spot market products;
- A fully integrated business model with four clearinghouses for equities, derivatives, securities and spot FX, a complete custody system, as well as its own settlement bank;
- A hybrid trading model encompassing floor, electronic and Web trading;
- The highest growth profile in the exchange industry.
The resulting entity will capture the attractive macroeconomic and market growth dynamics of Latin America and will strengthen Brazil as a Latin American center for equities and derivatives expertise.
By bringing together the respective knowledgeable and experienced teams of BOVESPA Holding and BM&F, New Exchange will have the resources and scale to develop and successfully market new capital market products and high value data services, as well as to offer an integrated clearing solution to an enlarged and international customer base.
The integration is expected to add significant value to BOVESPA Holding and BM&F shareholders through New Exchange's enhanced growth profile and opportunity to achieve meaningful synergies. Cost synergies of up to 25% of the combined expenses are targeted. Depending on the closing date, synergies will be partially phased in during 2008, with most of the synergies expected to be achieved in 2009 and 2010. In addition, revenue synergies will be targeted through the development of new trading, clearing and market data products and by leveraging the broader platform across multiple asset classes. Capital structure and governance of New Exchange
The shareholders of BM&F and BOVESPA Holding will receive common shares of New Exchange at a 50/50 ratio. In addition, the shareholders of BOVESPA Holding will receive BRL1.24 billion in cash.
New Exchange shares will be listed to trade on Novo Mercado. Its Board of Directors will consist of directors appointed by BM&F and BOVESPA Holding in equal number, most of whom will be independent directors.
The boards of directors of the two companies also decided to set up a Transition Committee, which will consist of the chairmen of the boards of directors and the chief executive officers of both companies. This Committee will be in place through December 31, 2008.
The Transition Committee will recommend the new Chairperson and CEO to the Board of Directors of the New Exchange within 60 days after the approval of the transaction at each company's shareholders meetings.
Until those nominations are presented, the current chairmen of the boards of BM&F and BOVESPA Holding will jointly chair the Board of Directors of New Exchange, whereas the two principal officers of the two companies will act as joint chief executive officers.
The boards of directors of the two companies have authorized their management teams to complete the preparatory actions and measures required for the proposal to be submitted to the shareholders. Conditions to closing
The transaction is subject to definitive documentation, approval at the shareholders' meetings of both companies and regulatory approvals. Advisors
Credit Suisse for BOVESPA Holding and Rothschild for BM&F are acting as financial advisors. Barbosa, Mussnich and Aragão for BOVESPA Holding and Mattos Filho, Veiga Filho, Marrey Jr. and Quiroga law firm, and Nelson Eizirik for BM&F are acting as legal advisors in this transaction.