UPDATE: CBOE Value Climbs As Legal Battle Nears Endgame
October 19 2009 - 3:32PM
Dow Jones News
The indicative value of the Chicago Board Options Exchange
climbed to $2.6 billion Monday amid speculation of a long-sought
deal that could value the business at or above $5 billion.
Backers of a sale or flotation of the largest U.S. options
exchange hope that years of legal wrangling over its ownership may
near a conclusion this week, triggering a potential bid battle next
year between other exchange operators.
CME Group Inc. (CME), the world's largest futures exchange, is
viewed as a potential suitor and has put out feelers valuing CBOE
at around $5 billion, according to a report in Crain's Chicago
Business.
The member-owned CBOE has been pursuing a sale or flotation for
more than three years, but the legal barriers have seen it miss a
frothy market that drove sector valuations as high as 50-times
forward earnings.
While CBOE and CME declined comment, one of the CBOE's 930 seats
changed hands Monday for $2.8 million, above the $2.4 million in
the previous trade last month. A pricetag of $2.8 million
multiplied by 930 seats would give the exchange an indicative value
of $2.6 billion.
CBOE seats changed hands for as much as $3.1 million in early
2008 as traders and financial investors lined up for a sale or IPO
- the preferred route of the CBOE management led by Chief Executive
William Brodsky.
Analysts said a $5 billion price tag on CBOE looked optimistic
as exchange valuations have tumbled over the past 18 months, but
trading volume has held up better in options than in futures and
cash equities, and the CBOE and its management are seen as an
attractive franchise.
The reported talks involving CME are seen by some observers as
an effort to curb dissent surrounding a settlement over CBOE's
ownership that would give some members of the Chicago Board of
Trade an 18% stake in the business. The options business was spun
off in 1973 by CBOT, now a part of CME Group.
Final appeals against the proposed deal are due by Wednesday.
Brodsky has estimated that the case will likely not conclude until
mid-2010 at the earliest.
The pending litigation remains a thorn in CBOE's side, but would
not necessarily hold up a potential sale to CME or another suitor,
according to persons familiar with the matter.
If the legal wrangling continues, CBOE could list litigation as
a risk, set aside the necessary funds to address the issue, and
move ahead with merger talks.
-By Doug Cameron, Dow Jones Newswires; 312-750-4135;
doug.cameron@dowjones.com; and Jacob Bunge, (312-750-4117;
jacob.bunge@dowjones.com