Update: CME Matches BGC in Battle for GFI

Increases offer to $5.25 per share, matching BGC's premium.

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BGC's chances have taken a blow with CME Group's move.

CME Group made the announcement ahead of a December 9 deadline for the expiration of BGC's tender offer. The firm, which has aggressively courted the shareholders of GFI (in which it holds a 13.5 percent stake) after negotiations between the GFI board and its own broke down, had previously set a deadline of November 19.

Under the terms of CME and GFI's definitive agreement, the two-step transaction where CME would merge a subsidiary with the firm, and the brokerage business would then be bought back by a consortium including GFI's current management, remains unchanged. The consortium, however, has agreed to raise its "cash payment for GFI's IDB business to $254 million from $165 million plus the assumption at closing of approximately $72 million in unvested deferred compensation liability to employees, for a total consideration of $326 million plus the assumption of additional GFI Group liabilities and other commercial guarantees," CME says in a statement. Shareholders can expect a mix of cash and CME Group stock.

BGC's offer, on the other hand, is an all-cash transaction that will see the brokerage and technology businesses ─ Trayport and Fenics ─ integrated with the firm. CME is primarily interested in the technology aspect of GFI, and its total consideration of $655 million, including the assumption of $240 million in GFI Group debt, for these businesses remains unchanged.

Uphill Struggle
BGC has always faced a hefty challenge in breaking up the deal between GFI and CME Group. GFI is controlled by Jersey Partners, which has a one-third stake in the company and is run by GFI Group executives who would be part of the management buyout consortium. Jersey has reaffirmed its intent to commit its own shares to the CME Group deal and will merge as part of the deal, meaning that BGC would have to up its conversion rate of other shareholders to an enormous degree.

Also factoring in to BGC's woes is the rejection of its bid by a "special committee" formed of independent directors at BGC to assess the offer's value for shareholders. BGC has since revised elements of the offer, and claimed to be in promising discussions with the committee when it extended the deadline. It also announced that it had resolved difficulties with the UK Financial Conduct Authority (FCA), which objected to the way in which it increased its holdings in GFI.

BGC has consistently claimed, however, that its bid constitutes a superior offer, largely due to the discrepancy in its valuation at $5.25 per share, whereas CME's original offer placed the firm at $4.55 per share. Now that this has been matched by CME Group, the future of BGC's bid is placed into considerable doubt.

GFI was trading at $5.03 per share at market close yesterday on Nasdaq, with a daily high of $5.10 and a low of $5.00.

Update (1035 AM): BGC has issued a statement regarding the enhanced offer by CME Group and the GFI management consortium, reiterating that its bid still represents a superior proposal to GFI shareholders.

"Our $5.25 per share all-cash offer remains superior to the CME's stock and cash proposal," says Howard Lutnick, chairman and CEO at BGC. "We have made significant progress in receiving the necessary regulatory approvals, including early termination of the [Hart-Scott-Rodino Antitrust Improvements Act] waiting period in the US and approval by the FCA in the UK, and our all-cash offer provides immediate liquidity to GFI shareholders upon the close of our tender offer. We are currently evaluating our options with regards to the transaction."

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