CBOE to buy Bats for $3.2bn

CBOE to buy Bats for $3.2bn

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CBOE, owner the largest options exchange in the US, is buying stock exchange operator Bats in a $3.2bn deal.

Nasdaq-listed CBOE made the announcement ahead of the US market open on Monday, adding that it plans to fund the purchase via a mixture of stock and debt.

Bats, which only went public on its own exchange five months ago, has a strong pan-European equities business.

It has also been expanding its share of US options trading in recent years, gaining ground on CBOE itself as well as Nasdaq and ICE-owned New York Stock Exchange.

CBOE said it expects to shift trading in all of the combined company's markets onto a single platform which could eventually cut costs by as much as $65m a year.

Edward Tilly, CBOE's chief executive will lead the combined company, the Chicago-based firm said on Monday. 

Chris Concannon, currently at the helm of Bats, will become president and chief operating officer.

"The acquisition of Bats is expected to strengthen our position as a global leader in innovative tradable products and services, and is a transformative next step in our growth strategy," Tilly wrote in a statement.

He added that combining together CBOE's product innovation, indexing expertise and options market position with Bats' proprietary technology, global ETP listing and trading venues represents a “compelling combination” that should deliver significant benefits for customers and stockholders. 

The deal is still subject to regulatory clearances and approvals and needs to be backed by shareholders but CBOE says it expects to complete the purchase in the first half of 2017. 

David B. Weiss senior analyst with Aite Group said CBOE's acquisition of Bats helps the firm bulk up, broaden its asset classes to include cash equities and FX, extend its global footprint to the EU, and make it more than just a US options powerhouse. 

"It also puts CBOE in a good position to leverage Bats’ ETF business, given CBOE’s S&P and VIX know-how, and take advantage of Bats’ excellent technology abilities. Nasdaq was very shrewd in acquiring ISE and in one fell swoop pushed CBOE back on its heels, so CBOE probably felt it had to do something," Weiss added.

"One wonders what the plan is going forward. While CBOE is the bigger party, Bats is by far the more agile and forward-thinking one. How would CBOE and Bats be able to integrate their technology stacks? There’s also a potential for tremendous culture clash, which might lessen the value of Bats post-acquisition if its talent heads for the exit. 

"Just consider Bats being all-electronic from the jump while CBOE still has open outcry pits. How much is CBOE interested in acquiring Bats for its human capital and expertise for a transformative effort (i.e., like what Nasdaq and NYSE did back in the day by acquiring electronic upstarts and then, in a sense, becoming their acquisitions)? As well, Asia-Pacific and fixed income gaps would remain after the deal."

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