CME Group Inc and CBOE Holdings Inc are singing in perfect harmony. After years of speculation about whether the two Chicago financial giants might tie the knot, the chiefs of both derivatives exchange operators have come out in unison: we're not interested.
"For the foreseeable future, we don't see the need for large-scale M&A," CME CEO Craig Donohue said in an interview with Reuters on Thursday. "As we are thinking about the next five years, our focus is really on driving growth in our core business. That's really the next phase for us."
William Brodsky, who led the Chicago Board Options Exchange parent company to its $339 million initial public offering last month, offered his variation on the same theme earlier this week. "I'd rather build this company organically, in things that I understand and can do very well with, than just get involved in some transaction just to say we've done a transaction," Brodsky told Reuters in an interview on Monday. "I think we have everything in place where we can operate as we are for an indefinite period."
CME cemented its title as the No 1 US futures-market operator in a shopping spree from 2007 to 2008 that gave it the Chicago Board of Trade and the New York Mercantile Exchange in addition to its first market, the Chicago Mercantile Exchange.
Rivals like NYSE Euronext, IntercontinentalExchange Inc and Nasdaq OMX Group Inc also spent billions bulking up in recent years. But the exchange leaders' comments this week may mark a turning point for the industry. "We believe it speaks volumes about the stage of the lifecycle that CME, and quite frankly most of the US exchange industry is in - namely a mature phase," Barclays Capital analyst Roger Freeman wrote in a note to investors on Friday. "The rapid consolidation phase that characterised the middle part of the last decade is more or less complete."
However, neither Brodsky nor Donohue completely shut the door to a partnership. There is no question that the futures industry is something that Brodsky understands. He ran the CME as its CEO for 12 years, twice as long as Donohue has held the same position.
And while Donohue ruled out "large-scale" M&A, it's unclear whether CBOE fits that bill. CME's acquisition of the Chicago Board of Trade cost the bigger exchange about $11 billion; its purchase of the New York Mercantile Exchange cost $8 billion. By comparison, CBOE is valued at $2.8 billion. But many analysts agree that no new deals are imminent, and particularly for the two Chicago exchanges.
"I don't think it would ever make sense for CME Group to buy CBOE," said Raymond James analyst Patrick O'Shaughnessy, who is based in Chicago. CME has a successful franchise in a business where it has a near monopoly, and buying CBOE would expose it to the more competitive arena of securities markets. As for CBOE, he said, "Bill Brodsky has had a lot of people saying they the only reason he is going public is to sell he firm, and he's been trying to shake that perception," O'Shaughnessy said.