Chicago Board Options Exchange to go public this summer
Directors of the Chicago Board Options Exchange, the largest U.S. equity derivatives market, approved shedding its members-only structure and becoming a public company.
The CBOE said its goal is to demutualize and sell shares in an initial public offering by the end of the second quarter, according to a letter sent to members today. Today's vote follows a Nov. 30 agreement by the last major U.S. derivatives exchange that is still privately owned to pay $4.17 million to settle appeals in a three-year-old lawsuit related to its ownership.
"We can see the light at the end of the tunnel," said Norman Friedland, a CBOE seatholder and former floor trader in Chicago. "We're free to move on. This is the endgame we were looking for all along, it just took a long time."
The Chicago-based options exchange said less than two weeks ago that former members of the Chicago Board of Trade who held out after a judge approved a settlement of their suit last year agreed to dismiss their claims. Former CBOT seat holders said they were owed a bigger stake of the CBOE because they created the exchange in 1973. The case kept CBOE Chairman William Brodsky from following other exchanges that have gone public and seen their shares soar.
Buying Back Shares
The company will be known as CBOE Holdings Inc. after the IPO, according to today's statement. Proceeds from the offering will be used in part to buy shares from members who receive stock in the demutualization, it said.
CBOE memberships have more than doubled from a three-year low of $1.2 million in March on speculation the 36-year-old U.S. derivatives market will be taken over. A seat last sold for $2.5 million on Dec. 8.
The options exchange may be worth $1.3 billion to $2.3 billion based on 2010 earnings of $135 million and a price-to- earnings ratio of between 13 and 17, Pali Capital Inc. analyst Chris Allen wrote in a note to clients on Dec. 1. On "aggressive" assumptions, it may be valued as high as $2.6 billion, he said.
The Chicago Board of Trade was acquired by the Chicago Mercantile Exchange in 2007, creating CME Group Inc., the world's largest futures exchange. The Delaware Chancery Court lawsuit was filed in August 2006. Board of Trade members' ownership rights were written into the CBOE's incorporation documents after CBOT members created it in 1973.
'Happy About That'
The CBOT almost tripled to $227.50 by the time it was acquired by the CME from its first-day closing price in October 2005. Nymex Holdings Inc., owner of the world's largest energy exchange, doubled on its first trading day in 2006.
"The process is moving forward and we're happy about that," Thomas Caldwell, chairman of Toronto-based money manager Caldwell Securities Ltd., which oversees about $1 billion and owns 51 CBOE seats. "We think it'll work out all right."