Mergers, Acquisitions, Alliances and Synergies Case Study

Case Title:

MERC and CBOT Merger: Building One Roof Trading

Abstract:
On October 17, 2006, the two largest American futures exchanges, Chicago Mercantile Exchange (CME) and Chicago Board of Trade (CBOT) had announced a consolidation where CME would buy CBOT for about $8b in stocks and cash. The combined company would be called CME Group Inc. The combined company was valued at $25b and was expected to have average daily volume of 9m contracts, resulting in the world’s largest derivatives market by volume. According to analysts, the deal would result into greater scale, further diversification of the product set and potentially conservative cost saving assumptions. However, there are certain challenges for both the exchanges including the large volume or ‘laws of large numbers’ and a CME shift to focus on execution rather than growth. This case explores how the move taken by the two future exchanges is going to help them to grab the opportunities in global market, strategic benefits they are likely to get out of it and the problems perceived by the analysts.

Pedagogical Objectives:

• To understand the world derivatives market
• To understand the business models of the two largest American future exchanges, Chicago Mercantile Exchange (CME) and Chicago Board of Trade (CBOT)
• To analyse the prospective synergies from the merger of the CME and CBOT
• To debate the future challenges that the two exchanges would face as a result of the merger.

Keywords : Mergers,Acquisitions,Alliances Case Study;Chicago Mercantile Exchange (CME); Chicago Board of Trade (CBOT); Derivatives; Over-the-counter market; Open outcry; Boot strap; Futures; Options; New York Stock Exchange; Euronet NV; Demutualisation; CME Globex; Life Connect; Application programming interface (API); NASDAQ (National Association of Securities Dealers Automated Quotation system)