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$8 Billion Exchange Merger to Create a Giant

Combined company from upcoming merger of CME and CBOT will have average daily volume of 9 million contracts and is ready to face foreign competition.

When Chicago Mercantile Exchange Holdings Inc. acquires CBOT Holdings, Inc., the resulting company will be a combination of the two largest futures exchanges in the U.S. The new exchange will be called CME Group Inc., a CME/Chicago Board of Trade Company, and it will be the world's largest derivates market.

The two Chicago companies were once crosstown rivals, but after the announcement of CME's $8 billion purchase of CBOT, both sides say they are looking forward to working together.

Craig S. Donohue, CME's chief executive and future executive of the combined company, is predictably happy with the deal. "As a combined company, we will be better positioned to capitalize on these trends and compete more effectively as our industry continues to transform," he says.

Current CBOT chairman and future vice-chairman of the combined company Charles P. Carey also spoke optimistically. "As a single entity, we will be the world's premier financial marketplace in terms of product breadth, global reach and market capitalization and ensure that Chicago remains the center for risk management worldwide," he says.

The companies combined to trade 1.44 billion contracts last year, and is in a good position to face foreign competition from company's such as the Korean Exchange and other emerging Asian markets and Europe's Eurex, Euronext.liffe, and Deutsche Boerse.

The consolidation may not be finished, however. CBOT and the Chicago Board Option Exchange had talked about a merger until this August, and the new company might be positioned to complete this and other acquisitions.

Investors showed approval for the merger, as the CBOT surged to $16.75 or 12.5% to $151.26, and the CME climbed $8.30 to $511.55.

CME shareholders will own about 69% of the combined company to CBOT stockholders' 31%. The exchanges expect increased earnings within 12 to 18 months as a result of the deal. The merger is still subject to regulatory approval.

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