CHICAGO -- Chicago Mercantile Exchange Holdings Inc. and CBOT Holdings, Inc. today announced they have signed a definitive agreement to merge the two organizations.



The combined company, to be named CME Group Inc., a CME/Chicago Board of Trade Company, is expected to transform global derivatives markets, creating operational and cost efficiencies for customers and exchange members, while delivering significant benefits to shareholders.



Corporate headquarters of the combined organization will remain in Chicago.



The combined company will bring together two proven industry-leading innovators to create a single company, strengthening its ability to grow in an increasingly competitive environment. With leading global derivatives trading in all major asset classes, the combined company will provide one of the world's most liquid marketplaces, with average daily trading volume approaching 9 million contracts per day, representing approximately $4.2 trillion in notional value.



The combined company will provide customers efficient, global access to a wide array of benchmark exchange-traded derivatives based on U.S. interest rate yield curve, equity indexes, foreign exchange, agricultural and industrial commodities, energy and alternative investment products such as weather and real estate.



Transaction structure



CBOT stockholders will have the right to receive 0.3006 shares of CME Class A common stock per share of CBOT Class A common stock (the exchange ratio) or to elect an amount in cash per share equal to the value of the exchange ratio based on a ten day average of closing prices of CME common stock at the time of the merger. The cash portion of the consideration is subject to a $3 billion aggregate limit and will be subject to proration if cash otherwise payable would exceed that limitation.



If no stockholders elect to receive cash, stockholders of CME and CBOT would own approximately 69 percent and 31 percent of the combined company, respectively, and CME would issue approximately 15.9 million shares. Based on the closing stock prices of CME and CBOT on October 16, 2006, the last trading day prior to the announcement of the merger, the combined company is valued at $25 billion (CME equity $18 billion; CBOT equity $7 billion.)



The merger will not impact core trading rights or membership or clearing privileges at either exchange. The cash portion will be financed through cash on hand and debt financing, if necessary.



Governance



When the merger is completed, Terrence A. Duffy, chairman of CME, will become chairman of the combined organization. Charles P. Carey, chairman of CBOT, will become Vice-Chairman of the combined organization. Craig S. Donohue, CEO of CME, will become CEO of the combined organization. Bernard W. Dan, CEO of CBOT, will remain in his current position focusing on overseeing CBOT's activities, products, and customers until the transaction is complete, at which time he will serve as special advisor to the combined company for one year.



The Board of Directors of the combined company initially will comprise 29 directors -- 20 directors designated by CME and 9 directors by CBOT.



"We are very pleased to announce this strategic merger today," said CME Chairman Terry Duffy. "We have enjoyed a strong, productive relationship with CBOT for a number of years, including our historic clearing agreement in 2003 in which CME began clearing all CBOT trades. This merger takes us to the next level in the evolution of our high-growth business.



"We now will be able to combine the capabilities and best practices of both organizations -- establishing an even stronger, more competitive position than either could achieve individually. I am personally very proud to have this opportunity to work so closely with our counterparts at CBOT to complete this momentous transaction for the benefit of our customers and shareholders."



Charlie Carey, CBOT chairman said, "This is a landmark agreement for our companies, our industry and the city of Chicago. Since CBOT began offering the world's first agricultural futures contracts in 1848, we have been at the forefront of derivatives trading. By combining our leading institutions, we will be better positioned to continue our traditions of innovation and leadership.



"As a single entity, we will be the world's premier financial marketplace in terms of product breadth, global reach and market capitalization and ensure that Chicago remains the center for risk management worldwide."



The transaction is expected to close by mid-year 2007, pending approvals by regulators, and shareholders of both companies and CBOT members, as well as completion of customary closing conditions.



Lehman Brothers and William Blair are acting as financial advisors to CME; and Skadden, Arps, Slate, Meagher & Flom LLP is acting as CME's legal advisor. JPMorgan is acting as sole financial advisor to CBOT; and Mayer, Brown, Rowe & Maw LLP is acting as CBOT's legal advisor.



Representatives who are serving on the CME transaction committee include: Terry Duffy; Craig Donohue; Phupinder Gill, CME President and chief operating officer; and CME board members Leo Melamed, chairman emeritus, and Jack Sandner, retired chairman. Representatives who are serving on the CBOT transaction committee include: directors Charlie Carey, Bernard Dan, Joseph Niciforo, Christopher Stewart and CC Odom II.



A special transaction committee of the CBOT is being advised by its financial advisor, Lazard Freres & Co., LLC, and is being advised on legal matters by Latham & Watkins LLP.



Replay of investor conference call, Webcast available

A replay of an investor conference call and Webcast from this morning will be available later today, and through Nov. 17, 2006 and can be accessed by dialing 888-286-8010, conference code 24590429. International callers can access the replay by dialing 617-801-6888. The replay will also be available at www.cme.com and www.cbot.com.

CME Holdings became the first publicly traded U.S. financial exchange on Dec. 6, 2002. The company was added to the S&P 500(R) Index on August 10, 2006, and the Russell 1000(R) Index on July 1, 2003. It is the parent company of Chicago Mercantile Exchange Inc., the largest and most diverse financial exchange in the world. As an international marketplace, CME brings together buyers and sellers on its CME Globex electronic trading platform and on its trading floors. CME offers futures and options on futures primarily in interest rates, equities, foreign exchange, commodities, energy and alternative investments. The exchange managed $47.2 billion in collateral deposits at June 30, 2006, including $4.6 billion in deposits for non-CME products.



As one of the leading global derivatives exchanges, CBOT provides a diverse mix of financial, equity and commodity futures and options-on-futures products. Building on its 158-year history, CBOT continues to advance into the future using the strength of deep liquidity, market integrity and member-trader expertise.



SOURCE: Chicago Mercantile Exchange news release.