Analysts say CME-Cboe deal ‘still possible’ after proposal is denied

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Analysts expect CME Group may still bid for Cboe Global Markets despite a statement that the exchange has not held talks with its fellow Chicago rival.

The Financial Times reported on Wednesday that CME had approached Cboe about a potential $16bn takeover. CME later responded to the report saying it was not “in conversations” and had “not had any discussions”. Cboe declined to comment.

A tie-up between the two, among the biggest derivatives exchanges in the US, has long been floated, although managements of both have historically sought to stress their independence.

The CME statement meant “the chances of a near-term deal are low”, said Kyle White, an analyst at Keefe, Bruyette & Woods. 

“However, we believe it will be tough for investors to completely dismiss this report. We believe a deal remains possible between these two companies at some point, even if there has not been any direct discussions between the two as of yet.”

Cboe shares spiked sharply on the report and CME shares fell but both reverted after CME’s denial.

Industry insiders have long expected that the two Chicago exchanges would come together. Over the years they have mulled the possibility.

In February this year Cboe changed the compensation structure for some of its top executives in charge of key business lines in the event that they were fired after a takeover. 

The so-called “change in control” clauses, which are usually put in place when executives at a company are concerned about being a takeover target, included Chris Isaacson, its chief operating officer and Brian Schell, chief financial officer.

Chris Allen, an analyst at Compass Point, said the potential for tougher regulation by the Securities and Exchange Commission that would come with the acquisition of Cboe had always appeared to be a deterrent to a deal.

“Historically, we had dismissed the probability of a deal between the two as we believed CME had little interest in coming under Securities and Exchange Commission purview in any fashion,” he said. “We have softened on that a bit in recent years although we note current SEC chair Gensler was not much of a friend to the futures exchanges when he ran the Commodity Futures Trading Commission.”

CME, which traces its roots back to 1848, dominates US derivatives trading, with futures and options contracts related to such commodity markets as oil and wheat as well as US interest rates. Cboe, formed in 1973, owns the Vix volatility equity indices, as well as equity options exchanges, stock exchanges and an extensive share trading and clearing business in Europe.

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