KANSAS CITY, Mo. _ Bats Global Markets Inc. has accepted a $3.2 billion buyout offer from Chicago-based CBOE Holdings Inc., just five months after becoming a publicly traded company.
The deal followed unconfirmed reports Friday that the two companies were in talks. Bats, founded in 2005 and headquartered outside Kansas City, runs the second-largest stock exchange in the nation behind the New York Stock Exchange, and CBOE is a major options market operator.
Bats shareholders will receive 31 percent of the purchase price in cash and CBOE shares equal to the remaining 69 percent. The $3.2 billion value is based on CBOE's shares valued at $70.30.
Each Bats share will receive $10 in cash and 0.3201 shares of CBOE. The agreement, however, allows each Bats shareholder to elect to receive all cash or all stock.
Shareholders of both companies will vote on the proposed merger, which also requires regulatory clearances and approval.
Combining the companies brings together dissimilar backgrounds _ Bats has been a disruptive force in its industry operating an electronic trading platform and the CBOE is a long-established operator of the traditional open-outcry markets in which humans interact face-to-face to determine prices.
"Bats was not for sale," its CEO Chris Concannon said Monday during a conference call with analysts. "Bats found a strategic relationship that was unparalleled in how we fit together."
The two companies operate in largely distinct fields. Bats has stock exchanges in the United States and across much of Europe as well as a foreign exchange market. CBOE operates futures and options markets in the United States.
CBOE has been clear that it values Bats not only for its markets but also for its proprietary trading platform that the Chicago company's markets will migrate to. CBOE also sees Bats' European markets as a place where it can expand its operations into.
The companies said Chicago will be the headquarters of the merged businesses and Kansas City will retain Bats' technology operations. At the same time, the companies expect much of the savings to come from combining their information technology operations, including savings through a "reduction of IT resources."
Bats had about 300 employees globally in May, and currently has 142 employees in the Kansas City area. It also has offices in New York and London.
Cost savings from the merger will reach $50 million a year within three years and $65 million in savings in five years, the companies said. Some of those savings will come through moving to one proprietary trading platform and some by "optimizing the expense structure" of the combined company, the announcement said.
The price tag was slightly below the $33 a share value that Keefe, Bruyette & Woods analyst Kyle Voigt had estimated on Friday. Voigt, however, said other potential bidders seem unlikely to interrupt the agreed sale with a higher offer.
Nasdaq Inc. and Intercontinental Exchange Inc., which owns the NYSE, would be interested in Bats, Voigt had written Friday in a note to clients, but each also would "face anti-trust challenges in completing a deal."
The CBOE-Bats deal marks the second time in four years that a Kansas City trading market has been acquired by a larger Chicago-based market. In 2012, the CME Group agreed to buy the Kansas City Board of Trade and ended its 157-year-old wheat market less than a year later.
"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," CBOE chief executive Edward T. Tilly said in the announcement of the sale agreement.
Tilly will be CEO of the combined companies. Concannon will be president and chief operating officer.
Bats trails only the New York Stock Exchange in daily trading volume of U.S. stocks and is larger than Nasdaq.
