Shares of CBOE Holdings Inc jumped as much as 16 percent in their stock market debut Tuesday as investors saw bright prospects for the parent of the Chicago Board Options Exchange.
The stock opened on Nasdaq at $32.80 and rose as high as $33.75.
A crowd of 400 to 500 people gathered on the CBOE floor in Chicago's financial district in anticipation of the debut. The crowd, awash in confetti and blue-and-white balloons, included Illinois Congressman Danny Davis, Governor Pat Quinn and Chicago Mayor Richard Daley, as well as top brass from CBOE.
After the market closed on Monday, CBOE sold 11.7 million shares for $29 each in an initial public offering, pricing at the top of the expected range and raising about $339 million.
The IPO gave CBOE, the last major North American exchange to become publicly traded, a market value of $2.97 billion. It was a surprising show of strength in the U.S. IPO market, which in recent weeks has suffered from equities volatility due to worries over Europe's sovereign debt woes.
In May and so far in June, 14 U.S. IPOs have raised $1.51 billion, according to Thomson Reuters data, while 18 planned offerings worth almost $4 billion have been postponed or withdrawn.
But CBOE's success does not necessarily mean that other deals will also do well, said analyst Nick Einhorn of Greenwich, Connecticut-based IPO research house Renaissance Capital.
It's a business model that investors like a lot, and it's a proven company, Einhorn said. It's a little different from a typical IPO.
CBOE, founded in 1973 as a member-owned offshoot of the Chicago Board of Trade, has said it will use proceeds from the IPO to conduct share buybacks from members, who otherwise would have to wait at least six months before selling their stock.
The IPO also gives newfound flexibility to Chief Executive Officer William Brodsky, freeing him from the need to balance the interests of member-owners against his goal to maximize CBOE's profits. It is also profitable for Brodsky, 66, whose personal shares are valued over $6.5 million.
The IPO provides a currency -- shares -- that can be used either to make acquisitions or to facilitate CBOE's takeover by another company. Speculation on a potential merger partner has most commonly focused on domestic buyers such as CME Group Inc and NYSE Euronext , but has also included overseas players such as Germany's Deutsche Boerse AG and Brazil's BM&F Bovespa SA .
We cannot ignore the possibility that CBOE could be taken over, and the likelihood that its valuation will reflect a degree of takeover/scarcity premium, wrote Credit Agricole Securities analyst Rob Rutschow, who started coverage of CBOE on Tuesday at outperform.
Brodsky has publicly acknowledged past merger talks with the Chicago Board of Trade, now owned by CME. International Securities Exchange and the CBOT, whose 2005 IPOs were marked by early share-price surges, were both later acquired by larger competitors at fat premiums.
Last quarter, CBOE earned $22.7 million on revenue of $101.1 million. Results are set to jump as the exchange begins charging for trading access.
Analyst Christopher Allen of Ticonderoga Securities in New York estimates that such fees will generate $81 million in revenue in 2011, boosting earnings per share by 38 percent.
But CBOE still faces some challenges. A July 8 ruling will determine whether it can continue licensing its highest-margin products, and the U.S. Securities and Exchange Commission is considering fee caps.
When Brodsky joined the exchange in 1997, it was by far the biggest in the United States. In 2000, the U.S. Justice Department forced the breakup of de facto monopolies in the industry, and an all-electronic market called the International Securities Exchange began moving in on CBOE's turf.
After years of eroding market share and an ever-more restless membership -- some of whom would adorn their trading jackets with anti-Brodsky buttons -- the CEO finally turned the things around with a new trading system that wedded electronics to open outcry, a system still in use today.
CBOE is back to being the biggest U.S. options market, and traders on Tuesday were sporting new buttons emblazoned with the words NOW PUBLIC.
(Reporting by Ann Saphir in Chicago and Clare Baldwin in New York; Editing by Lisa Von Ahn and John Wallace)