By Cheryl Buchta

The May/December romance between the 7-year-old IntercontinentalExchange and the 159-year-old Chicago Board of Trade reached passionate heights over its four-month time span.

But on Monday — after months of trash talk between the Chicago Mercantile Exchange and ICE — CBOT shareholders dashed the hopes of the Atlanta-based suitor and agreed to marry their century-old rival.

The $11.8 billion deal brings together two venerable Chicago exchanges: CBOT, which was established in 1848 as a flour, timothy seed and hay futures market, and CME, the former Chicago Butter and Egg Board established in 1898.

"This vote also ensures that Chicago remains the center for risk management worldwide," CME Chief Executive Officer Craig Donohue said.

Beau Greiman, a partner with Chicago-based law firm Levenfeld Pearlstein, who focuses his practice on commodities and futures, said the deal is definitely a win for CME because the synergies inherent in the merger will drive down costs.

"Estimates are that there will be $125 million of savings from collapsing the CME's trading floor into the CBOT," he said. "Also, repetitive contracts can be combined and the CBOT's electronic platform collapsed into CME's Globex platform. These measures should produce tremendous cost savings and have excellent potential to increase profits."

Greiman noted savings could be passed on to investors rather than reducing the price of doing business at the exchange. In addition, he said, the consolidation gives CME/CBOT some very powerful products, creating "high barriers" for new competing products. 

Like any good romance story, CME's successful attempt to boot ICE out of the romantic triangle didn't come easily or cheaply.

The tipping point may have come as late as last Friday when the CME and CBOT "revised" the terms of their agreement for the third time, with CME upping its common stock exchange ratio from 0.350 shares to 0.375 shares. The move, which means CBOT shareholders will own approximately 36% of outstanding shares of the combined company, up from 35% in the prior offer, also brought the approval of Caledonia Investments PYT, CBOT's largest shareholder.

The offer was the third time CME had upped its offer to CBOT since its original proposal in October 2006, in an attempt to top an unsolicited bid by ICE, which started in March.

This time, however, ICE did not up its bid, instead letting its last offer stand.

After the announcement Monday afternoon that shareholders had approved the CME/CBOT merger, ICE Chairman Jeffrey Sprecher issued a brief note to CBOT members and shareholders thanking them for their willingness to consider ICE's proposal, and taking credit for creating additional value in the CME offer.

"Despite our disappointment in the outcome, our proposal has brought many benefits for both CBOT and ICE stockholders," Sprecher wrote. "For CBOT stockholders, ICE's involvement has created nearly $3 billion in additional value through our willingness to recognize the true worth of your company."

Sprecher said the bid had also shown its stockholders its ability to leverage its position as one of the "fastest growing, global and most technologically sophisticated exchanges in the world."

Greiman agreed, saying the challenge gave the new exchange credibility. "[ICE was] in the press the entire time period as a rival." That's important because ICE is not nearly as big a player as the CME, he said, and with the global consolidation taking place, "if ICE does not continue to grow, it could become a take-over target."

As CME was announcing its win, Sprecher was in Washington, DC, testifying before the Senate Permanent Subcommittee on Investigations on ICE's role in the billion-dollar collapse of Amaranth Advisors in 2006 (see related story, page 4).

ICE apparently didn't spend much time grieving about the lost opportunity to merge with CBOT. Also on Monday, the exchange announced yet another acquisition in the energy trading space: ChemConnect, an electronic trading platform that trades natural gas liquids and chemical markets such as ethylene, propylene and benzene.

"The acquisition complements ICE's leading position in the US physical gas and power markets," ICE said. "Utilized by the world's largest producers and consumers of natural gas liquids and chemicals, ChemConnect has established a 10-year track record in expanding the markets for these products and providing hedging opportunities for market participants."

Sprecher left CBOT and CME with one last thought. "The future winners in our industry may not be the biggest or oldest players," he wrote. "Success will be determined by the ability to adapt quickly to changing markets and innovate responsively in creating new products and serving customers around the globe. ICE will remain focused in these areas and we look forward to the opportunity to work with you in the future."