The Chicago Board Options Exchange will pay $2.1 million to settle its long-running litigation over ownership rights, eliminating legal barriers to demutualization within days or weeks, the exchange said.
The settlement with Chicago Board of Trade members who appealed a 2008 deal with CBOE could represent the last hurdle before the exchange either goes public or merges with another company. Takeover speculation has surrounded CBOE for years and surfaced again as recently as October.
CBOE is the largest U.S. options exchange. Its long path to demutualize its membership organization into a for-profit shareholder company was snagged in a legal battle with CBOT members over a decades-old agreement on trading rights. Derivatives exchange CME Group Inc now owns CBOT.
Under the settlement, outlined in a circular from CBOE chairman and Chief Executive William Brodsky to its members late on Monday, CBOE said it would pay the appealing parties a total of about $4.2 million.
CME Group would reimburse CBOE for half, bringing CBOE's net payment to about $2.1 million.
CBOE said the settlement would eliminate all remaining litigation impediments to demutualization within days or weeks instead of months, and would avoid further legal expenses related to the appeals.
CBOE believed the appeals would have failed, it said in the circular. The settlement requires the Delaware Supreme Court to dismiss all appeals within two weeks.
CBOE'S LONG QUEST
An October media report said CME Group was in informal talks to buy CBOE for up to $5 billion, sparking a 17 percent jump in the price of a CBOE membership.
Analysts have said that price tag is rich. Pali Capital's Chris Allen estimated CBOE's value at between $1.3 billion and $2.3 billion, adding in a note to clients the demutualization process would likely take months.
Diego Perfumo, analyst at Equity Research Desk, said it is very difficult for an exchange that relies chiefly on one asset class to remain independent. Most investors today are trading multiple asset classes ... and they want to use a single point of contact, he said.
NYSE Euronext, for example, which runs the New York Stock Exchange and is seen as another possible CBOE buyer, runs equities, futures and options markets.
Any progress toward a CBOE demutualization -- a revamp that many exchanges went through earlier this decade -- has been hamstrung over an agreement dating back some 36 years.
When CBOT spun off CBOE in 1973, certain CBOT members had the right to trade options at the neighboring Chicago exchange without having to buy a separate membership.
The CBOE contended those rights were extinguished when Chicago-based CME Group bought CBOT in 2007.
The CBOT and some of its members sued the CBOE in 2006 in a Delaware court to retain the historic trading rights, which would confer equity ownership in the options market.
A Delaware judge in June approved a 2008 deal between the two sides, in which a group of eligible CBOT members will receive an 18 percent equity interest in the CBOE's demutualization and $300 million in cash. That settlement still requires approval from CBOE members.
But some CBOT members appealed the ruling this year.
CME Group shares were up 0.8 percent at $330.83 on the Nasdaq, in line with peers.
(Editing by Padraic Cassidy)