CME Renews Its CBOT Pitch

A higher bid from ICE threatens to split the would-be partners.
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The battle for the

Chicago Board of Trade

(BOT)

is due to take another twist Thursday.

The

Chicago Mercantile Exchange

(CME) - Get Report

agreed back in October to buy its crosstown rival for $8 billion in stock and cash. But

IntercontinentalExchange

(ICE) - Get Report

surprised Wall Street last week by making an unsolicited $9.9 billion all-stock bid for CBOT.

The Board of Trade responded by pledging to review the ICE bid and by canceling a scheduled April 4 shareholder vote on the CME-CBOT deal. On Thursday, the CME is expected to make its pitch to CBOT shareholders.

With the CME bid worth around $160 a share and the insurgent ICE bid worth $184, CME management is under pressure to pay CBOT shareholders more than lip service. Recent trading in CBOT shares -- they fetched $197 Wednesday -- shows that Wall Street expects the winner in this battle, whoever it is, to pay up.

Some observers believe the Merc has too much at stake to risk losing.

"If the ICE pulls this off, they're coming from virtually nowhere to a serious rival to the Merc," says Brendan Caldwell, a portfolio manager at Caldwell Asset Management in New York. Caldwell's firm has positions in many of the U.S. exchanges. "I don't think the Merc can afford to let the ICE" win.

The CME wouldn't comment Wednesday on whether it would step up its price.

But complicating the picture is the Merc's penchant for thrift.

John Lothian, president of the electronic trading division at Price Futures Group in Chicago, says the CME "has a pattern of not overpaying."

The exchange has considered mergers with both the ICE and the

International Securities Exchange

(ISE)

in the past, but thought the prices were too high, Lothian says.

Michael Greenberger, a professor at the University of Maryland Law School and former director or trading and markets for the Commodity Futures Trading Commission, notes that if the ICE is successful, it is unclear whether Chicago will remain the center for futures trading, despite ICE's promises to keep its headquarters there.

"Will the balance of power in the futures industry move from Chicago to New York and London?" asks Greenberger. "That's such a big issue that I think the Merc will do everything in its power to keep the two exchanges."