Justice OKs Chicago Mercantile-CBOT deal

The Justice Department on Monday concluded Chicago Mercantile Exchange Holdings Inc.'s proposed acquisition of CBOT Holdings Inc. would not substantially reduce competition in futures markets.

The agency's approval gives CME a boost in its bidding war against InterContinental Exchange Holdings Inc., which is also seeking to buy CBOT Holdings, the parent company of the Chicago Board of Trade.

The Justice Department said CME and CBOT account for most of the financial futures contracts traded in the United States, particularly interest rate futures. However, Justice said their specific products differ and do not directly compete with each other.

In addition, the department said the combined company would still have an incentive to innovate, because in the past the primary incentive for both exchanges has been their efforts to win business from the over-the-counter market.

Futures are contracts that allow investors to bet on the future price of gold, oil and other assets without owning them directly.

CME first offered to buy CBOT last Ocotober in an all-stock deal valued at approximately $8 billion. Atlanta-based InterContinental Exchange then jumped in in March with a $10.1 billion bid. CME responded by boosting its offer 16 percent last month.

The value of the two offers fluctuates with each company's share price. At Monday's closing prices, CME's offer is worth $10.3 billion, while ICE's is worth $11.2 billion.

CBOT's board is recommending that shareholders approve the CME offer, however. CBOT Chief Executive Bernard Dan said last week that he preferred CME's bid because it would be easier to integrate the two companies, which share a service to clear the contracts traded on its floors.

Shareholders of CBOT Holdings and Chicago Mercantile are scheduled to vote on the transaction July 9.

A consolidated CME-CBOT would host trading of almost 9 million contracts per day, representing $4.2 trillion worth of underlying commodities.

Shares of Chicago Mercantile Exchange rose 43 cents in after-hours trading, to $557.50, after increasing $7.44 to finish at $557.07 Monday.