The transaction will bring together products and services while promising operational efficiencies via a streamlined trading platform.
CBOE Holdings, the holding company of several options exchanges, will be expanding its product offerings across asset classes and geographies with the $3.2 billion acquisition of the upstart exchange Bats Global Markets, which itself acquired a swap execution facility (SEF) over the summer.
The holding company for the Chicago Board Options Exchange (CBOE), CBOE Futures Exchange (CFE), and other subsidiaries has just announced that the board of directors for each party has unanimously approved a definitive agreement to facilitate the acquisition. CBOE Holdings also offers equity, index and exchange traded product (ETP) options, including proprietary products, such as options and futures on the CBOE Volatility Index (VIX Index) and S&P 500 options (SPX), officials say.
Edward T. Tilly, CEO, CBOE Holdings
CBOE Holdings will own Bats via a cash and stock transaction “valued at approximately $32.50 per Bats share, or a total of approximately $3.2 billion, consisting of 31% cash and 69% CBOE Holdings stock, based on CBOE Holdings’ closing stock price of $70.30 per share on September 23, 2016,” according to CBOE officials.
“Under the terms of the agreement, Bats stockholders will receive $10.00 per share in cash and 0.3201 of a share of CBOE Holdings common stock, representing a total consideration of approximately $32.50 per share, based on the closing price of CBOE Holdings common stock on September 23, 2016,” CBOE officials add.
The merger agreement also allows “each Bats stockholder to seek all cash or all stock, subject to proration and adjustment,” officials say. “The company intends to fund the cash portion of the consideration and the refinancing of Bats’ debt through available cash and new borrowings of $1.65 billion, for which commitment letters have been obtained.”
The per-share consideration is “a premium of 22.5% to Bats’ closing stock price on September 22, 2016, the last full trading day prior to media publications regarding the potential transaction,” CBOE officials say.
The transaction will be subject to customary closing conditions such as the approval of the stockholders of both companies, and the required regulatory clearances and approvals, say CBOE officials who expect the transaction to be completed during the first half of 2017.
Both parties say the transaction will achieve cost and operational efficiencies via trading system consolidation, and more market data and services offerings.
“Within three years of the completion of the transaction, CBOE Holdings expects to realize $50 million in annualized expense synergies, increasing to approximately $65 million of anticipated expense synergies within five years following closing,” say CBOE officials. “CBOE Holdings expects to achieve these synergies by migrating to a single proprietary trading platform and optimizing the expense structure of the combined company.”
The acquisition will lead to an “enhanced” combination of market data products and services that are offered with a global distribution network, officials say. The additional asset classes includes U.S. and European cash equities, global exchange traded products (ETPs) and global foreign exchange markets. In addition, the deal will put CBOE Holdings in a better position to “meet the needs of the growing index–based investing market,” officials say.
Bats, which is ranked as the second-largest stock exchange operator in the U.S., runs the largest stock exchange and trade reporting facility in Europe, officials say. Bats has headquarters in Kansas City, Missouri. Bats also brings with it a pioneer in the push for SEFs, the Javelin SEF, which it acquired in August.
The acquisition will also lead to leadership changes.
“Following the close of the transaction, Edward T. Tilly, CBOE Holdings CEO, will remain CEO of the combined company,” officials say. The CEO for Bats Chris Concannon will take on the role of president and chief operating officer (COO) after Edward L. Provost, CBOE Holdings president and COO, reitres, officials say. Chris Isaacson, Bats chief information officer, will succeed Gerald T. O’Connell as in the same role as he also plans to retire at that time, officials add. The chief financial official for CBOE Holdings Alan J. Dean will remain in that role for the combined company.
After the closing of the acquisition, the combined company will have a board of directors that will consist of 14 directors, say officials, who add that “11 of the 14 members” are already serving on the CBOE Holdings board. The three additional board members will come from the Bats board of directors.
The new, combined company will have its headquarters in Chicago, and will have business offices in Kansas City, New York and London, officials say. The company will also have presences in San Francisco, Singapore and Quito, Ecuador.
BofA Merrill Lynch and Broadhaven Capital Partners, are the co-lead financial advisors to CBOE Holdings, officials say. Sidley Austin is serving as CBOE Holdings’ legal counsel.
Barclays Capital Inc. is the lead financial advisor, with UBS Investment Bank acting as co-financial advisor to Bats, officials say. The legal firm of Davis Polk & Wardwell is assisting Bats.
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