CME Group Inc. (CME) is not considering to the drop-out of the fifth-largest global interdealer broker – GFI Group Inc. (GFIG) deal as an option. Consequently, the company matched the inter-dealer broker – BGC Partner Inc.’s (BGCP) competing its offer of $5.60 a share in cash and stock for GFI Group earlier this week.
However, BGC Partners once again raised the bar higher by offering a price of $5.85 per share in cash based on a contingent agreement that expires on Jan 19. With 127.5 million outstanding shares, this would amount to about $746 million, way higher than about $580 million initially quoted by CME Group, which was further raised to about $669 million in December.
Furthermore, if GFI Group is unable to decide before Monday’s deadline, a ‘non-contingent’ offer price of $5.75 per share will stand til Jan 29. This is still about 9.7% higher than the last offer of $5.60 a share.
This is the second time CME Group has hiked its bidding price since it agreed to acquire GFI Group in Jul 2014. The counter offers from BGC Partners, which already has a 13% stake in GFI Group, had compelled CME Group to raise its initial offer price of $4.55 per share to $5.25 in Dec 2014.
Luring Incentives
CME Group had agreed to acquire GFI Group’s European energy (Trayport) and global foreign exchange software (FENICS) businesses. To make the offer more lucrative, the acquirer revised the terms of the deal in Dec 2014 by assuming a debt of $240 million and liabilities of $77 million (up from $72 million), along with other revenue-sharing treaties.
Additionally, following the acquisition, CME Group will now sell the former’s wholesale brokerage and clearing business to a private consortium (formed by the GFI Group management) for about $282 million, up from the previously decided $254 million that was raised from $165 million.
Nevertheless, GFI Group appears to be gaining from the war of two bidders. Subsequently, shares of GFI Group closed 2.75% higher at $5.60 a share on Thursday. The latest price of $5.60 per share also represents an 80% premium over GFI Group’s closing price of $3.11 on Jul 29, 2014, when the deal was inked with CME Group.
Our Take
While shareholders of GFI Group have to decide about CME Group’s offer by Jan 27, the counter offers and continued bidding have put additional pressure on the acquirer. However, it also showcases CME Group’s incessant efforts to have this deal materialize and capitalize on the long-term expansion and growth strategies that it promises to offer. Currently, we remain on the periphery to analyze future developments in this space.
Zacks Rank
Currently, CME Group carries a Zacks Rank #2 (Buy). Another similar-ranked close peer, CBOE Holdings Inc. (CBOE), may also attract the investors interested in this sector.
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