CME Group Inc. (CME), the world’s largest futures exchange, will buy the Kansas City Board of Trade for $126 million in cash to add a wheat contract to its products.
CME Group’s Chicago Board of Trade lists futures on soft- red winter wheat that are a lower-quality grain used in animal feed and some cookies and cakes compared with Kansas City’s hard red winter wheat, which is used to make bread and other food products. Hard red winter varieties will account for 44 percent of U.S. wheat production this year, government data show. Futures and options on the grain are the only contracts listed at the Kansas City exchange.
The acquisition is CME Group’s largest since it bought the New York Mercantile Exchange for $7.6 billion in 2008. The company, which offers futures contracts on interest rates, equity indexes, currencies, energy and commodities, was formed by the acquisition of the Chicago Board of Trade by the Chicago Mercantile Exchange the year before.
Jason Britt, president of brokerage Central States Commodities Inc. in Kansas City, Missouri, said there was speculation before today that Intercontinental Exchange Inc., the second-largest U.S. futures market that’s known as ICE, was interested in buying the Kansas City market.
“There is talk that it was a hurry-up-and-do-it because ICE was involved and CME wanted to outbid them and give them a springboard into the grains,” he said. The purchase will bring the two wheat contracts onto the same trading system, making it easier for traders to buy one and sell the other simultaneously, he said. “With the CME platform it’ll make it easier on the spread traders,” he said. “The most difficult thing was getting the spreads to match up.”
Jeff Borchardt, chief executive officer of the Kansas City Board of Trade, said there were other buyers for the company, though he declined to name them.
“There were multiple interested parties that could bring value to the shareholders,” he said on a conference call with reporters today. Steven Campbell, chairman of the exchange, said the process of selling the private company began in the spring.
Brookly McLaughlin, an Intercontinental spokeswoman, said the company doesn’t comment on speculation about acquisitions.
CME Group, based in Chicago, controls about 98 percent of U.S. futures trading. The company had $1.29 billion in cash and cash equivalents as of June 30, according to its most-recent quarterly filing.
A seat on the Kansas City market last sold for $480,000 on Aug. 28, according to the company’s website. CME Group fell 0.2 percent to $57.39 as of 10:57 a.m. in New York. The shares have gained 17.8 percent this year.
CME Group said it will maintain the Kansas City trading floor active for at least six months. Terrence Duffy, executive chairman of CME Group, said on the conference call that timeframe isn’t certain and the company may keep the floor open for longer.
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