CBOE garners $339 million in IPO (original) (raw)
CBOE Holdings Inc. proved its doubters wrong Tuesday with a richly priced initial public offering that raised 339millionandvaluedtheparentoftheChicagoBoardOptionsExchangeatmorethan339 million and valued the parent of the Chicago Board Options Exchange at more than 339millionandvaluedtheparentoftheChicagoBoardOptionsExchangeatmorethan3 billion.
But even as U.S. Rep. Danny Davis, D-Ill., Gov. Pat Quinn and Chicago Mayor Richard Daley joined CBOE Chairman William Brodsky in a confetti-drenched trading-floor celebration, analysts and investors were questioning how long CBOE will remain an independent company.
Priced at 29pershare,theupperendofarangemanyobserversthoughtwashigh,CBOEshotoutoftheboxonTuesday,soaringasmuchas16.4percent,toahighof29 per share, the upper end of a range many observers thought was high, CBOE shot out of the box on Tuesday, soaring as much as 16.4 percent, to a high of 29pershare,theupperendofarangemanyobserversthoughtwashigh,CBOEshotoutoftheboxonTuesday,soaringasmuchas16.4percent,toahighof33.75, before closing the day at $32.49.
That valued the newly public company at a higher multiple of future earnings than rival exchanges such as its Chicago neighbor, CME Group, which many experts say has a more valuable franchise.
The reason, many said, is that CBOE enjoys a substantial acquisition premium, meaning the market is betting that the newly public company will be acquired at a premium price by another exchange as the hotly competitive industry continues to consolidate.
“Of course it is going to be acquired,” said CBOE seatholder Lawrence Goldstein of Santa Monica Partners in Larchmont, N.Y. “Every exchange is on the prowl for acquisitions.”
CBOE, the last major North American exchange to transform itself into a publicly traded company, has been stymied from going public for years by a protracted court battle with the Chicago Board of Trade and its parent, CME Group, over trading rights on the floor. Analysts applaud Brodsky for fighting through the legal thicket and organizing support among CBOE seatholders to clear the way for an IPO.
The Chicago exchange chose what many analysts said was a particularly difficult time to go public. Many IPOs have fallen below their offering prices this year. But Josef Schuster, whose Chicago firm, IPOX Schuster, specializes in IPO investments, said the data are misleading. Big, brand-name IPOs like Hyatt Hotels Corp., Dollar General Corp. and, now, CBOE have done fine, he said.
“CBOE is a very strong global brand, and that was confirmed by the market,” Schuster said.
Other analysts, however, pointed out that CBOE has strengths that make it attractive to an acquirer and weaknesses that make it vulnerable. And the logic behind industry consolidation is powerful, Goldstein said, as exchanges look for more transaction volume to cover high fixed costs.
Diego Perfumo, an analyst with Equity Research Desk in Greenwich, Conn., pointed out that CBOE’s great asset is the 34 percent of its business that is in proprietary financial products, primarily S&P 500 index options and its VIX gauge of U.S. equity volatility, a measure sometimes called the “fear index.”
The problem, Perfumo and others said, is that a larger portion of CBOE’s business is in financial products that are called “fungible,” meaning they can be traded on multiple exchanges, making them less valuable to the exchange. Perfumo also said that cheaper, exchange-traded substitutes for CBOE’s S&P options are growing, even if they are imperfect proxies.
He and others said CBOE’s strengths make it a highly attractive target for exchanges like the NYSE Euronext, which has been looking to expand its derivatives business, and the fast-growing IntercontinentalExchange Inc., which has been a serial acquirer.
Many have also speculated that CME, which took over the Board of Trade in 2007, will find a way to gobble up CBOE. But others consider that unlikely because CME specializes in non-fungible futures regulated by the Commodity Futures Trading Commission. Were it to take over CBOE, it would have to mix its offerings and take on another regulator, the Securities and Exchange Commission.
Not everybody thinks a CBOE takeover is inevitable. Brodsky didn’t talk to the media Tuesday, but he has been outspoken about the new company’s ability to expand and thrive on its own.
Thomas Caldwell, a Canadian investor who owns more than 50 CBOE seats and has been buying them recently in anticipation of the IPO, said that he’s betting on any number of scenarios to increase the company’s value. He does think a deal is likely but said CBOE could easily be the acquirer. He also noted that the CBOE’s new shareholders will light a fire under management to operate more profitably.
“The IPO process was draining on management,” Caldwell said. “Now it’s time to run the business.”
Originally Published: June 15, 2010 at 1:00 AM CST