ICE Heats Up Board of Trade Battle

It throws in some cash, but a rival deal is advancing.
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InterContinental Exchange

(ICE) - Get Report

isn't giving up on its hostile bid for

Chicago Board of Trade



Late Tuesday, the Atlanta-based futures and commodities exchange tweaked its $11 billion merger plan to give CBOT shareholders as much as $2.5 billion in cash. ICE's plan previously called for compensation in the deal to be all stock.

The news comes just a day after the

Chicago Mercantile Exchange

(CME) - Get Report

, the Board of Trade's chosen suitor, said it got Justice Department clearance to complete its $10 billion cash-and-stock merger with the BOT.

ICE also said it would freeze trading fees for certain CBOT members before its 2011 annual meeting.

"This enhanced proposal demonstrates ICE's continuing commitment to address the needs of CBOT stockholders and members," said ICE chief Jeff Sprecher. "Over the past few weeks, we have had productive discussions with a wide spectrum of stakeholders. Based on this input, we have devised an enhanced proposal that we believe is extremely compelling to stockholders and members."

The Justice Department said Monday that while the CBOT and the CME account for most financial futures traded on U.S. exchanges, "their products are not close substitutes and seldom compete head to head, but rather provide market participants with the means to mitigate different risks."

Last month, the CME improved its $10 billion offer for the CBOT by increasing the amount of stock it will issue to shareholders in its deal, as well as planning a huge buyback for once the deal is completed.

ICE counterattacked the CME's improved bid two weeks ago by agreeing with the

Chicago Board Options Exchange

over exercise rights held by CBOT members. Under the $660 million pact, Board of Trade members will get $500,000 each to compensate them for relinquishing rights to trade at the CBOE.

"While we believe ICE still has a slight/modest uphill battle in its quest to displace the CME, we believe the clear takeaway is that ICE CEO Jeff Sprecher has established himself as a clear leader and force to be reckoned with in the exchange space," writes Rich Repetto, an analyst at Sandler O'Neill & Partners. "And while it won't be directly recognized in ICE's revenue and earnings, we believe it does make ICE as a company more valuable and attractive to shareholders."

On Wednesday, ICE fell $2.13 to $146.85, while CBOT was flat at $201 and CME rose $1.60 to $550.28.