Merc's New Bid Mucks Up CBOT Merger

The folks running the Chicago Mercantile Exchange could learn something from media baron Rupert Murdoch.
Murdoch wants to buy Dow Jones & Co., publisher of the Wall Street Journal and other influential financial news outlets. Murdoch's not kidding around, so recently he offered an unsolicited 67 percent premium over Dow Jones' stock price, a bid so high that it's unlikely a rival suitor will emerge. With the price tag out of the way, it's Murdoch's deal to make or break.
Then there's the Merc. The Chicago exchange really wants to acquire the competing Chicago Board of Trade. It just doesn't want to pay top dollar. So, instead of launching a preemptive strike last year that would have scared the daylights out of potential rivals, the Merc offered a moderate $8 billion. That opened the door to a bidding war, which got rolling when the New York-based Intercontinental Exchange Inc. (ICE) offered $10.1 billion for the CBOT.
You would think the Merc's leadership would have learned something from that experience but apparently it hasn't. Today, the Merc countered by raising its original offer to $9.2 billion, while reiterating that its deal is "superior" to ICE's bid.
Will that price and cheeky approach win the day with CBOT shareholders,who must approve any merger? Unlikely. That's because the last time anyone checked, $9.2 billion was still less than $10.1 billion.
In this takeover game, the Merc is playing a very odd and dangerous hand. Not to match an offer that's on the table is an insult to the seller. It also begs some nagging questions, including:
If the Merc is now willing to pay $9.2 billion, why didn't it go above $10.1 billion? Considering the Merc's ample financial strength, it's not that great a stretch. And if the Merc won't pay that much, why should CBOT shareholders take a haircut, even if CBOT management prefers the Merc offer (which it re-asserted today)?
These are the issues CBOT shareholders will be mulling in the days to come.
The Merc hierarchy argues the link-up of the two Chicago exchanges will forge a futures industry powerhouse, one that controls all the trading of contracts on interest rates and stock indexes. It adds that the combination will result in significant cost-savings, while giving it the market clout to expand around the globe.
(There are some antitrust worries about a Merc-CBOT deal but that's a tale for another day.)
For Chicago, the merger means generating good-paying finance-related jobs for many years to come, the Merc adds.
I'd like to see a Merc-CBOT merger because it would ultimately be better for the area's commercial and employment scene.
But before we get to that point, let's deal with some harsh realities.
The first Merc offer was sub-par and the new one isn't much better. The marketplace, which Merc leaders know better than most people, is telling them the offer is too low.
Most everyday people could care less who buys the CBOT and who gets rich off the deal. But CBOT shareholders, who are scheduled to vote on a merger deal July 9, don't see it that way (obviously) and they're not going to take a lower offer because their management team recommends it. Nor will they do so for the greater good of the global futures market or to boost the City of Chicago's economic prospects.
How can the Merc prevail? Do what Rupert would do--offer top buck and go from there.