Bats exchange deal would bring CBOE instant diversity

A potential acquisition by CBOE Holdings Inc of Bats Global Markets Inc would kick-start the Chicago-based options exchange operator's sluggish growth and give it exposure to new asset classes in the United States and Europe, analysts said on Friday.
CBOE is in talks to acquire Bats and may pay for the No 2 US equities exchange with cash and stock, according to a person familiar with the matter who asked not to be named because the discussions are private. The terms have not been finalized and a deal is not yet certain, the person said. Scooping up Bats would instantly diversify CBOE's business, giving it more sources of revenue across the globe.
Shares of Bats were up 20.6 percent and CBOE was up 1.8 percent on Friday afternoon. The talks were first reported by Bloomberg late Thursday. Representatives for CBOE and Bats declined to comment. Earnings growth at CBOE has slowed meaningfully since 2014 while the exchange's value has continued to rise, helped by the value of its proprietary products, said Kyle Voigt, an analyst at Keefe, Bruyette & Woods, who said the deal could be worth $3.2 billion.
CBOE owns the Chicago Board Options Exchange and has an exclusive licensing deal on the S&P 500 Index options contract through 2032 and non-exclusive rights through 2033. The exchange also has rights on the popular VIX volatility index. Those two products now generate more than 80 percent of CBOE's transaction revenue compared to about 50 percent five years ago, said Voigt.
Bats merged with Direct Edge in 2014 to become the second-largest US stock exchange operator. The Kansas City, Missouri-based company also owns the largest pan-European stock exchange, a foreign exchange-trading platform, as well as two options exchanges that would give CBOE a more competitive US market position. Nasdaq Inc announced in March it was buying US options exchange operator International Securities Exchange for $1.1 billion from Deutsche Boerse AG. The deal solidified Nasdaq as the No 1 US options exchange operator and it strengthened Deutsche Boerse's hand in a proposed merger with London Stock Exchange Group. CBOE had a 27.78 percent share of the US options market at the end of August, while Bats had 10.6 percent and Nasdaq 35.27 percent, according to the Options Clearing Corporation.