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CME Reportedly Offers to Buy Cboe for Almost $16 Billion

CME plans to pay for Cboe in stock, sources told the Financial Times. Cboe shares rose, and CME shares fell in reaction to the news.
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Cboe Global Markets  (CBOE) - Get Cboe Global Markets Inc Report shares rose Wednesday, after a report that competing financial-securities exchange CME Group  (CME) - Get CME Group Inc. Class A Report has proposed buying it for almost $16 billion in stock.

The news came from the Financial Times, citing three knowledgeable sources.

CME denied the rumors in a Wednesday statement. Cboe declined to comment, according to the report.

Both exchanges are based in Chicago. Cboe is famous for its VIX indices of stock volatility. CME, the world’s largest futures exchange, hosts U.S. Treasury futures trading among other securities.

CME’s proposed deal would have it exchange 0.75 of its own share for each Cboe share, the FT sources said.

That would value Cboe at about $149 per share. Cboe on Wednesday traded at $132.91, up 7%. CME recently traded at $197, down 4%.

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In takeovers, it’s common for the acquiring company’s stock to fall, while the target company’s stock rises. That’s because the acquirer is giving up assets, and the seller is often selling out at a premium.

Morningstar analyst Michael Miller puts fair value at $193 for CME.

“Wide-moat CME reported decent second-quarter earnings, with EPS of $1.64 coming in roughly in line with the FactSet consensus estimate of $1.61,” he wrote in a commentary last month.

“Revenue was effectively unchanged from the prior-year prior period with reported results of $1.18 billion.”

On the cost front, “operating expenses fell more than 7% from a year ago, though more than half of this decrease came from a lower amortization expense,” Miller said.

“CME is adept at managing its expenses, and we expect the company’s operating costs to be relatively stable over time.”