- The Washington Times - Saturday, July 7, 2007

CHICAGO (AP) — The Chicago Mercantile Exchange’s parent company moved closer yesterday to winning its nine-month campaign to acquire the Chicago Board of Trade, sweetening its offer by 7 percent and winning over the largest shareholder just three days before the vote.

The move pushed the bid by Chicago Mercantile Exchange Holdings Inc. over $11 billion, up from the $8 billion initially proposed last October amid rising stock prices that have helped escalate the deal’s value.

It’s the third time the world’s largest futures and options exchange has raised its offer to fend off IntercontinentalExchange Inc., which jumped into the bidding unasked in March.

Analysts said final approval for the deal in Monday’s shareholder vote looked secure barring a last-minute boost in the offer by ICE. The Atlanta-based exchange had not responded to requests for comment in the first several hours after the Merc announcement.

“There’s now a very high likelihood that the Merc bid will be approved Monday,” said Morningstar analyst Patrick O'Shaughnessy, referring to the Chicago Mercantile Exchange.

ICE already has improved its own offer twice, so industry analysts weren’t ruling that out. Deutsche Bank analyst Rob Rutschow put the odds of that at “better than 50-50.”

But Mr. O'Shaughnessy said it may not be in ICE’s best interest to do so.

“For ICE to come up with a meaningful premium, they would really have to dig deep, and I’m not sure it’s economically justifiable for them to do that,” he said.

Under the latest offer, stockholders of CBOT now would get 0.375 share of CME stock for every share they own.

That made the Merc’s revised offer for the crosstown CME higher than ICE‘s, based on Thursday’s closing prices. The position reversed itself again yesterday as stocks fluctuated, but the two were financially comparable based on share prices at over $11 billion.

The offer would give CBOT shareholders a 36 percent ownership stake in the combined exchange, up from 35 percent under the previous agreement.

The change won over CBOT’s largest shareholder, Australia-based Caledonia Investments Pty. Ltd., which had been opposed to the CME-CBOT combination. The Sydney investment group, which holds about 7 percent or 3.5 million shares of CBOT, issued a statement of support for the combination and encouraged all other shareholders to vote in favor of the deal.

“We have always supported this merger from a strategic rationale and long-term growth perspective,” said Caledonia Managing Director Will Vicars. “We continue to believe this combination makes massive sense for the industry, for the shareholders of both companies and customers. Now, with the CME’s latest enhancement, we fully endorse this merger and will vote in favor of this transaction.”

Four proxy advisory firms already have recommended approval of the combination.

Executives of the Merc and Board of Trade, rival exchanges dating to the 19th century, first agreed to combine last October before ICE complicated their plans.

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