CME Wins the Bid for KCBT - Analyst Blog
22 Ottobre 2012 - 12:00PM
Zacks
Expanding its band of grain future contracts, on Wednesday
CME Group Inc. (CME) announced its intention to
acquire rival exchange – Kansas City Board of Trade (KCBT) – for
cash payment of $126 million. Subject to regulatory approval, the
deal is expected to culminate by the end of this year.
Additionally, CME Group is committed to pay a special
distribution of excess cash to members of KCBT upon the successful
culmination of the transaction. The company will also set up a
team, comprising KCBT market participants, to advice on HRW wheat
contract terms and conditions for at least 3 years, and to keep the
KCBT trading floor open in Kansas City for at least
6months.
KCBT is the leading exchange for high quality hard red winter
wheat futures and options contracts. Hence, CME Group has
successfully bagged an important market since thus far, the company
was dealing in low quality hard red winter wheat. All types of hard
red winter wheat are expected to be 44% of total wheat production
in the US this year. Moreover, the rising demand for such products
amid the ongoing regulatory environment underscores the
significance of the acquisition.
Additionally, operational expansion into agricultural futures is
crucial for CME’s sustainability and maintaining its competitive
leverage. The acquisition bodes well for the company given its
rampant expansion into the futures of grains, other agricultural
and non-agricultural commodities. Following the acquisition of
KCBT, the company will gain control over all the wheat futures in
the US. The deal also bears immense scope of product development
for the clientele of both the parties.
CME Group has been consistently making efforts to maintain
leading position in the global derivative market. The company is
also seeking to bid for other important exchanges like Minneapolis,
which is the only wheat exchange left untapped by CME Group.
Such agricultural products are unraveling new growth avenues
that are being developed rapidly and are being equally eyed by
arch-rivals such IntercontinentalExchange Inc.
(ICE), who was also seeking the acquisition of KCBT to maintain its
dwindling position in the agricultural markets business. In March
2008, IntercontinentalExchange also lost its bid to CME Group for
purchasing Chicago Board of Trade (CBOT).
Meanwhile, the latest acquisition counts as the first purchase
of a rival exchange in 5 years, the last being the acquisition of
NYSE Euronext Inc.’s (NYX) the energy-focused New
York Mercantile Exchange (NYMEX). Before that, the company took
control of Chicago Mercantile Exchange and CBOT.
We believe although debt obligations, interest rate volatility
and rising competition pose operational risk to the company, CME’s
efforts to promote, expand and cross-sell its core exchange-traded
business through newer product initiatives along with its global
presence will generate a modest growth in the long run.
CME Group carries a Zacks Rank #4 that implies a short-term Sell
rating, while the long-term recommendation stands at Neutral.
CME GROUP INC (CME): Free Stock Analysis Report
INTERCONTINENTL (ICE): Free Stock Analysis Report
NYSE EURONEXT (NYX): Free Stock Analysis Report
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