CBOE Holdings, Inc. (NASDAQ: CBOE) and Bats Global Markets, Inc. (Bats: BATS) today announced that they have entered into a definitive agreement, which has been approved by the Board of Directors of each company by unanimous votes of the members of the boards present, under which CBOE Holdings has agreed to acquire Bats in 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.
The transaction will significantly expand CBOE Holdings’ product line across asset classes, broaden its geographic reach with Bats’ strong pan-European equities and global FX positions, and diversify its business mix with significant non-transactional revenue streams. CBOE Holdings expects to utilize Bats’ leading proprietary trading technology by migrating trading in all of the combined company’s markets onto a single, proven platform.
"The acquisition of Bats is expected to strengthen our position as a global leader in innovative tradable products and services, and is a transformative next step in our growth strategy,” said Edward T. Tilly, CBOE Holdings’ Chief Executive Officer. “We believe that bringing together CBOE Holdings’ product innovation, indexing expertise, and options and volatility market position, with Bats’ proven proprietary technology infrastructure, global ETP listing and trading venues, global foreign exchange marketplace and market data services, represents a compelling combination that should deliver significant benefits for our customers and enhanced long-term value for our stockholders. In particular, we believe the complementary nature of our respective offerings uniquely positions the combined company to provide the product set, transparency and tradability demanded by the rapidly-developing index-based investing market. Further, Bats’ market data expertise will allow CBOE Holdings to develop new products using the company’s index calculation capabilities.”
Mr. Tilly continued, “CBOE Holdings and Bats share a culture based on the goal of efficiently utilizing innovation to better serve customers and the broader marketplace while enhancing stockholder value. We expect the acquisition to enhance the trading experience by streamlining access for customers and to allow CBOE Holdings to provide greater scale, while significantly increasing operational and cost efficiencies.”
“This transaction offers our stockholders immediate cash value and allows us the opportunity to continue our great growth trajectory by combining with another market innovator in CBOE,” said Chris Concannon, Bats’ Chief Executive Officer. “Today’s announcement is a testament to the hard work and achievements of our talented employees around the globe and in every asset class in which we operate. We look forward to working with the CBOE team to facilitate a smooth integration.”
Following the closing of the transaction, CBOE Holdings expects to incorporate the functionality offered by both technology platforms and migrate onto a leading proprietary Bats’ system. By utilizing Bats’ technology and the combined customer reach of CBOE Holdings and Bats, CBOE Holdings plans to broaden distribution of its expanded product line to provide greater breadth and depth of products and services.
The transaction is expected to provide meaningful scale and financial benefits to CBOE Holdings, and should enable the company to further grow and capitalize on significant synergies expected to be achieved through the acquisition. 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. 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 transaction is expected to be accretive to CBOE Holdings adjusted EPS in the first year following the completion of the transaction and deliver attractive returns on invested capital.
Transaction Terms, Approvals and Timing
CBOE Holdings will acquire Bats for approximately $3.2 billion (based on CBOE’s closing stock price on September 23, 2016), and will fund the purchase price through a mix of stock and debt. 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. The merger agreement also contains an election procedure allowing each Bats stockholder to seek all cash or all stock, subject to proration and adjustment. 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 represents 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.
The transaction is subject to customary closing conditions, including the approval of the stockholders of both companies, and receipt of required regulatory clearances and approvals. Bats’ and CBOE Holdings’ directors and officers have signed supportive voting agreements. The transaction is expected to close in the first half of 2017.
Organization and Leadership
Following the close of the transaction, Edward T. Tilly, CBOE Holdings CEO, will remain CEO of the combined company. Chris Concannon, Bats CEO, will become President and COO, succeeding Edward L. Provost, CBOE Holdings President and COO, who plans to retire at that time. Chris Isaacson, Bats CIO, will succeed Gerald T. O'Connell as CIO, who also plans to retire at that time. CBOE Holdings CFO Alan J. Dean will remain as CFO of the combined company.
Following the close of the transaction, the Board of Directors of the combined company will consist of 14 directors, 11 of the 14 members currently serving on the CBOE Holdings board, plus three members from the Bats Board of Directors. These changes will be effective immediately upon closing.
The combined company’s corporate headquarters will be located in Chicago, with business offices in Kansas City, New York and London, as well as presences in San Francisco, Singapore and Quito, Ecuador.
BofA Merrill Lynch and Broadhaven Capital Partners, LLC are acting as co-lead financial advisors to CBOE Holdings. CBOE Holdings intends to fund the transaction through a mix of stock and debt and has received fully committed financing provided by BofA Merrill Lynch. Sidley Austin LLP is serving as CBOE Holdings’ legal counsel. Barclays Capital Inc. is lead financial advisor, with UBS Investment Bank acting as co-financial advisor to Bats, and Davis Polk & Wardwell LLP is serving as its legal counsel.
About CBOE Holdings, Inc.
CBOE Holdings, Inc. (NASDAQ: CBOE) is the holding company for Chicago Board Options Exchange (CBOE), CBOE Futures Exchange (CFE), and other subsidiaries. CBOE, the largest U.S. options exchange and creator of listed options, continues to set the bar for options and volatility trading through product innovation, trading technology and investor education. CBOE Holdings offers equity, index and ETP options, including proprietary products, such as options and futures on the CBOE Volatility Index (VIX Index) and S&P 500 options (SPX), the most active U.S. index option. Other products engineered by CBOE include equity options, security index options, Weeklys options, FLEX options, and benchmark products such as the CBOE S&P 500 BuyWrite Index (BXM). CBOE Holdings is home to the world-renowned Options Institute, Livevol options analytics and data tools, and www.cboe.com, the go-to place for options and volatility trading resources.
About Bats Global Markets, Inc.
Bats Global Markets, Inc. (Bats: BATS) is a leading global operator of exchanges and services for financial markets, dedicated to Making Markets Better. Bats is the second-largest stock exchange operator in the U.S., operates the largest stock exchange and trade reporting facility in Europe, and the #1 market globally for ETP trading. Bats also operates growing ETP listings venues in the U.S. and Europe, two U.S. options exchanges and Bats Hotspot, Bats’ global foreign exchange market. Also, ETF.com, a leading provider of ETP news, data and analysis, is a wholly-owned subsidiary of Bats. Bats is headquartered in Kansas City with offices in New York, London, Chicago, San Francisco, Singapore and Quito. Visit bats.com and @BatsGlobal for more information.