Agreement Delivers One-Time Cash Dividend to All CBOT Shareholders and Guarantee for Holders of CBOE Exercise Rights

CBOT Holdings Inc. has revised its merger agreement with the Chicago Mercantile Exchange, and announced that this sweetened offer is superior to the improved bid from IntercontinentalExchange, Inc. that was tabled yesterday.

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 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 … this combination will allow us to better compete in a rapidly changing and technology challenging global environment.”

Earlier, the CME and CBOT 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 exercise right privileges. All CBOT shareholders will receive a one-time cash dividend of US$9.14 per CBOT share, or a total of US$485 million.

Eligible holders of ERPs will have additional choice regarding their exercise rights: the right to continue as a class member in the CBOE lawsuit, or the right to sell their ERP to the corporation for US$250,000 payable following the closing of the merger. CME also eliminated the US$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.

They also agreed to extend for three years, to 2012, the 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.

The firms say that the combination of these enhancements 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.”

Carey added, “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.”

“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 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.”