By John McCrank, Sudarshan Varadhan and Sriraj Kalluvila
(Reuters) - CBOE Holdings Inc (O:CBOE) said on Monday it would buy Bats Global Markets Inc (Z:BATS) for $3.2 billion, a deal that would open new sources of revenue for the U.S. options exchange operator in multiple asset classes and geographies.
The deal values Bats, which went public just over five months ago at $22.88, at about $32.50 per share. Bats shares closed down 4.6 percent on Monday at $30.35 following a 19.9 percent rise on Friday on news of a potential deal. CBOE ended down 5.3 percent at $66.59 on Monday.
The announcement was the latest in a string of mergers and takeovers, including several that failed, as exchanges globally try to boost generally low margins by moving more trading business onto single platforms.
CBOE, which owns the Chicago Board Options Exchange, plans to scrap the technology upgrade it has underway and switch to Bats' trading technology. That would give its customers access CBOE's options and futures contracts, as well as the U.S. and European cash equities and global foreign exchange businesses it would acquire.
Combining the companies would help CBOE expand its index business, which includes an exclusive licensing deal on the S&P 500 index options contract through 2032, along with the popular VIX volatility index.
"We plan to bring together CBOE's indexing capabilities and Bats' product issuer relationships to generate new index services opportunities," CBOE Chief Executive Officer Edward Tilly, said on a call with analysts.
Tilly, who would lead the combined company, said CBOE would look to create new derivatives products in Europe, where Bats owns the largest pan-European stock market, and in foreign exchange, through Bats' HotSpot FX trading platform.
Bats also owns two options exchanges, which would help CBOE compete against Nasdaq Inc (O:NDAQ). The CBOE rival bought U.S. options exchange operator International Securities Exchange for $1.1 billion from Deutsche Boerse AG (DE:DB1Gn) earlier this year.
Bats CEO Chris Concannon, a former Nasdaq executive, would become president and chief operating officer if the deal is approved by regulators. Analysts said they do not expect any antitrust concerns.
Bats itself merged with Direct Edge in 2014 to become the No. 2 U.S. stock exchange operator.
The combined company would be based in Chicago, with offices in Kansas City, New York and London, according to a press release. The deal is expected to close by mid-2017 and add to CBOE's earnings per share within the first year, it added.
BofA Merrill Lynch and Broadhaven Capital Partners LLC were financial advisers to CBOE. Sidley Austin LLP was CBOE's legal counsel.
Barclays (LON:BARC) Capital and UBS advised Bats, while Davis Polk & Wardwell LLP was its legal counsel.