UPDATE: CBOE Deal With CBOT Paves Way For Demutualization
Wednesday August 20th, 2008 / 22h02
(Updates throughout with background information on dispute, financial information and CME statement.) By Doug Cameron and Lauren Pollock Of DOW JONES NEWSWIRES CHICAGO -(Dow Jones)- The Chicago Board Options Exchange, or CBOE, reached a deal Wednesday that paves the way for a long-anticipated sale or stock market flotation. The largest U.S. options exchange by contract volume has been prevented from changing its 35-year-old member-owned structure by a legal dispute with members of the Chicago Board of Trade, now part of CME Group Inc. (CME). The "definitive agreement" between the CBOE and CBOT members outlined Wednesday updates a deal first announced in June. This would give the CBOT members 18% of CBOE's equity and a cash payment of $300 million. CBOE has worked for more than 18 months to pave the way for a possible market listing, and the delay may affect its potential valuation or attraction to a shrinking band of suitors. The company, which also controls a stock exchange and futures platform, is valued at $2.3 billion, based on the Tuesday sale of one of its 931 seats, down from an all-time peak of $3.3 billion in June. The seat sale Tuesday was for $2.5 million. CBOT members have also pushed for a deal as their historical claim on CBOE equity required them to maintain a large holding of CME stock, which has halved in value this year. CME said in a statement that the settlement, which also requires court approval, would end any further claims on CBOE equity. "CBOE will be free to demutualize and has agreed to take reasonable steps to demutualize as soon as commercially possible." The options exchange declined to comment further beyond a notice to members in which Chairman Bill Brodsky called on its 931 seatholders to back the settlement at a meeting Sept. 17. Further details of the settlement are expected at a seatholder meeting on Friday. The ownership dispute between the CBOE and the Board of Trade - which created the options business in 1973 - has simmered for years. CBOE had rejected any CBOT member claims on its equity following last year's Chicago exchange merger, triggering legal action from both sides. In the letter to members, the CBOE board said the latest settlement "avoids the uncertainty, expense and distraction of continued litigation and gives the Exchange control over the timing of its demutualization and other strategic options". CBOE has been left as the last major U.S. options exchange in member hands, despite embarking on the path to demutualization in early 2006. International Securities Exchange, its closest rival, has since been acquired by the Eurex arm of Deutsche Boerse AG (DBOEF). NYSE Euronext (NYX), long seen as a potential buyer of the CBOE, picked up the third-ranked American Stock Exchange. Nasdaq OMX Inc. (NDAQ) recently closed its purchase of the Philadelphia Stock Exchange. Global exchange valuations have halved this year amid declining volumes of futures and cash equity trading, but the options business has continued to set records. CBOE volumes climbed 45% in July. Net profit rose to $42.1 million last year, from $24.3 million in 2006. -By Doug Cameron, Dow Jones Newswires; 312-750-4135; doug.cameron@dowjones.com -By Lauren Pollock, Dow Jones Newswires; 201-938-5964; lauren.pollock@dowjones.com Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=17jN%2BY%2BLk7RqyXnxJNeFvw%3D%3D. You can use this link on the day this article is published and the following day.
