SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 1, 2006
CBOT HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
| Delaware | 001-32650 | 36-4468986 | ||
| (State or other jurisdiction of incorporation or organization) |
(Commission File Number) | (I.R.S. Employer Identification No.) |
141 West Jackson Blvd.
Chicago, Illinois 60604
(Address, including zip code, of principal executive offices)
Registrant’s telephone number, including area code: (312) 435-3500
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
| x | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 8.01 | Other Events |
CBOT Holdings, Inc. (the “Company”) is furnishing presentation materials included as Exhibit 99.1 to this report pursuant to Item 8.01 of Form 8-K which were used at a November 1, 2006 meeting with certain members of the investment community. The Company is not undertaking to update this presentation. This report will not be deemed an admission as to the materiality of any information herein (including Exhibit 99.1).
IMPORTANT MERGER INFORMATION
In connection with the proposed merger of CBOT Holdings, Inc. (“CBOT”) and Chicago Mercantile Exchange Holdings Inc. (“CME”), the parties intend to file relevant materials with the Securities Exchange Commission (“SEC”), including a joint proxy statement/prospectus regarding the proposed transaction. Such documents, however, are not currently available. INVESTORS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED TRANSACTION WHEN IT BECOMES AVAILABLE, BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION. Investors will be able to obtain a free copy of the joint proxy statement/prospectus, as well as other filings containing information about CBOT and CME without charge, at the SEC’s website (http://www.sec.gov) once such documents are filed with the SEC. Copies of the joint proxy statement/prospectus can also be obtained, without charge, once they are filed with the SEC, by directing a request to CBOT Holdings, Inc., Attention: Investor Relations, at 141 West Jackson, Chicago, Illinois 60604 or calling (312) 435-3500.
CBOT, CME and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from CBOT shareholders in respect of the proposed transaction. Information regarding CBOT directors and executive officers is available in CBOT’s proxy statement for its 2006 annual meeting of stockholders, dated March 29, 2006. Additional information regarding the interests of such potential participants will be included in the joint proxy statement/prospectus and the other relevant documents filed with the SEC when they become available. This document shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
| Item 9.01 | Financial Statements and Exhibits |
| (c) | Exhibits: |
| 99.1 | Presentation dated November 1, 2006 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CBOT HOLDINGS, INC. | ||||||||
| Date: November 1, 2006 | By: | /s/ Bernard W. Dan | ||||||
| Name: | Bernard W. Dan | |||||||
| Title: | President and Chief Executive Officer | |||||||
INDEX TO EXHIBITS
| Exhibit Number |
Description | |
| 99.1 | Presentation dated November 1, 2006 |
Exhibit 99.1
CBOT Holdings, Inc.
Keefe, Bruyette & Woods Securities Brokerage Conference
November 1, 2006
Bernard Dan, President and Chief Executive Officer
Forward Looking Statements
November 1, 2006
Certain statements in this presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and includes any use of the words “may,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue”. These statements are based on management’s current expectations and involve assumptions that may be subject to change or risks and uncertainties that could cause actual results to differ materially from those set forth in the statements. Accordingly, actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statement contained in this presentation. The factors that may affect our performance may be found in the Annual Report on Form 10-K and other periodic reports filed by CBOT Holdings, Inc. with the U.S. Securities and Exchange Commission (“SEC”). These filings can be obtained at the SEC’s website at www.sec.gov. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
Market positioning and growth strategies
Financial review
Glen Johnson, Senior Vice President and CFO
Future opportunities
CBOT: Market Positioning
Market leader: Futures and options on futures
#2 in United States
#3 in World
Large, Expanding Market
Global Futures & Options on Futures Contract Volume (billions of contracts)
CAGR (‘00- ‘05) : 24%
34%
4.6
4.0 4.0 3.4 3.0 2.6 2.1 1.6
2000 2001 2002 2003 2004 2005
YTD Aug 2005
YTD Aug 2006
Source: Futures Industry Association
Note: Excludes options on individual equities
CBOT’s Volume Growth
Average Daily Volume by Venue (in thousands)
Off-exchange Open-auction Electronic
927
865
62
2000
1,037
825 209 2001
1,365
54
797
513
2002
1,804
77
790
934
2003
2,372
105 885 1,382 2004
2,677
104 834 1,739 2005
3,176
85 906 2,185
YTD 2006*
*YTD through Oct. 23
Operating Leverage
3,500 3,000 2,500 2,000 1,500 1,000 500 –
2000-2005 Item CAGR Avg. Daily Volume 24% Revenues 17% Expenses 8%
(5.0%)
2000
4.6%
2001
19.1%
2002
30.6%
2003
19.5%
2004
28.4%
2005
45.6%
9 mos 06
70.0% 50.0% 30.0% 10.0% (10.0%)
Average Daily Volume (000’s) Operating Margin (%)
Industry Growth Drivers
Technological advances Deregulation Globalization Commodities as asset class Importance of risk management U.S. government spending Asset class convergence
CBOT: Growth Strategies
New products, new services Global expansion Strategic alliances
Growth: New Products, New Services
CBOT Full-Sized Gold Futures Full-Sized Gold and Silver Options $25 Big Dow Futures Soybean Crush Options Binary Options Ethanol Dow Jones-AIG Excess Return Commodity Index
Gold and Silver Futures Market Share (North American Market)
60% 50% 40% 30% 20% 10% 0%
Jan-05 Apr-05
Jul-05 Oct-05
Jan-06 Apr-06
Jul-06 Oct-06
CBOT gold share CBOT silver share
CBOT share of all North American listed Gold and Silver futures contracts traded *Through Oct. 23
CBOT Metals Complex – ADV & Market Share Growth
CBOT Metals Complex
Futures ADV & Futures Market Share
Monthly ADV
80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 -
CBOT Futures Complex ADV CBOT Futures Market Share
8% 7% 7%
6% 5% 6%4% 4% 4% 4% 4% 3% 4% 5%
18% 15% 17% 13%
56% 52% 48% 46% 41%39%
29%
60% 50% 40% 30% 20% 10% 0%
Oct-04
Nov-04
Dec-04
Jan-05
Feb-05
Mar-05
Apr-05
May-05
Jun-05
Jul-05
Aug-05
Sep-05
Oct-05
Nov-05
Dec-05
Jan-06
Feb-06
Mar-06
Apr-06
May-06
Jun-06
Jul-06
Aug-06
Sep-06
*Oct-06
CBOT share of all North American listed Gold and Silver futures contracts traded
*Through Oct. 23
Growth: New Products, New Services
CBOT Full-sized Gold Futures Full-sized Gold and Silver Options $25 Big Dow Futures Soybean Crush Options Binary Options Ethanol Dow Jones-AIG Excess Return Commodity Index
Growth in Swap Futures
Citigroup and Goldman Sachs began providing liquidity July 3, 2006
Open interest has more than tripled since the start of the market maker program to 70,350 contracts at October 23, 2006
ADV for the third quarter 2006 was 4,651 contracts, 45 percent greater than last year’s third quarter
ADV for October to date is 61 percent higher than same period last year
Growth: New Products, New Services
Technology upgrades on e-cbot®
Increased speculative position limits
Growth: New Products, New Services
Technology upgrades on e-cbot®
Increased speculative position limits
Growth: Global Expansion
Global access to e-cbot ®
Ease of access to CBOT for market users
Offering side-by-side trading of Ag futures
Successful Launch of Side-by-Side Trading of Ags
Greater Global Access to Benchmark Agricultural Products
On-floor plasma screens display e-cbot market data.
Hand-held devices allow simultaneous trading on floor and e-cbot.
Electronic Agriculture Futures
Pre and Post Side-by-Side Trading of Ag Futures
01/01/06 thru 07/31/06
Electronic 3.5%
*Open Auction 96.5%
08/01/06 thru 10/23/06
Electronic 28.0%
*Open Auction 72.0%
Side-by-Side trading of Agricultural Futures started 08/01/06
*Includes off exchange
Growth: Strategic Alliances
JADE 50/50 Joint Venture
Hosting agreements with regional North American exchanges
Growth: Strategic Alliances JADE – Benefits and Strengths
Location: Singapore, the Asia-Pacific financial center that has a strong regulatory regime
Geography: Asia is the major growth engine for production/consumption of commodities and commodity derivatives
JV Partners: Both CBOT and SGX are market leaders in their individual fields
Electronic Trading Platform: e-cbot, with its proven technology
Clearing: SGX Derivatives Clearing
First Cross Border Asian-Pacific Commodity Marketplace
Specific appeal to Asia by trading ‘Asian’ Commodities
CBOT: Growth Strategies
New products, new services
Global expansion
Strategic alliances
Financial Review
Glen Johnson
Senior Vice President and Chief Financial Officer
Financial Highlights
Trading-volume and pricing increases spur revenue growth
Proven track record
Expanding operating leverage
Strong cash flow with high capital efficiency
Efficient and scalable operating platform
Historical Volume
Average Daily Volume (in thousands)
Metals, energy, and other Equity index Agricultural Interest rate
927
15 239
672
2000
1,037
21 241
771
2001
1,365
36 265
1,064
2002
1,804
| 1 |
|
63 289 |
1,450
2003
2,372
| 3 |
|
95 337 |
1,937
2004
2,677
| 5 |
|
109 |
364 2,199 2005
3,176
45 117
494
2,520
*YTD 2006
*Through Oct. 23
Rate per Contract
Overall Rate per Contract (RPC)
4Q04 to 1Q05: 20% increase
3Q05 to 4Q05: 14% increase (11.5% excluding accrual adjustments)
2Q06 to 3Q06: 10% increase $125,000 $100,000 $75,000 $50,000 $25,000 $0
1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 $0.700 $0.600 $0.500 $0.400 $0.300 $0.200 $0.100 $0.000
4Q06: 3-6% increase over 3Q06
Exchange Rev ($) 54,351 52,529 49,675 46,326 66,518 69,657 62,696 68,086 83,120 91,855 93,901 Clearing Rev ($) 16,589 19,634 18,609 18,724 21,277 22,559 20,027 18,274 23,231 25,366 29,265 RPC ($) 0.519 0.455 0.451 0.424 0.507 0.499 0.501 0.570 0.552 0.564 0.618
Recent Pricing Changes
October 1 Pricing Changes:
Certain membership types have lower thresholds for volume discounts
Certain non-member Treasury complex fees increased
Fee schedule reorganized to align fees with the Exchange’s membership and product structure
Rate per contract expected to increase 3% to 6% in fourth quarter 2006 over third quarter 2006
Sources of Revenue
Nine Months 2006 Revenue Components ($ in millions)
Market Data
$74 16%
Building $17 4%
Services $13 3%
Interest Income & Other $14 3%
Exchange Fees & Clearing $347 74%
Total Revenues = $465mm
Nine Months 2006 Exchange & Clearing Fees ($ in millions)
Equities $17 5%
Metals $9 3%
Agriculture
$64 18%
10 yr $124 36%
5 yr $51 15%
30 day + other
$22 6%
Total Exchange & Clearing Fees = $347mm
Financial Highlights
Trading volume growth, pricing increases fuel revenue growth
Proven track record
Expanding operating leverage
Strong cash flow with high capital efficiency
Efficient and scalable operating platform
Proven Track Record
Revenues ($mm)
Operating Expenses ($mm)
CAGR ( ‘00 –’05) : 17 % $215
2000 $252
2001 $308
2002 $381
2003 $380
2004 $467
2005
CAGR ( ‘00 – ‘05): 8 % $226
2000 $240
2001 $249
2002 $264
2003 $306
2004 $334
2005
Financial Highlights
Trading volume growth, pricing increases fuel revenue growth
Proven track record
Expanding operating leverage
Strong cash flow with high capital efficiency
Efficient and scalable operating platform
Operating Leverage
Operating Income ($mm)
CAGR (‘02 – ‘05) : 31%
($11) 2000 $12
2001 $59
2002 $117
2003 $74
2004 $133
2005
EBITDA ($mm) *
CAGR (‘00 – ‘05) : 39% $37
2000 $62
2001 $101
2002 $90
2003 $126
2004 $190
2005
| * |
|
EBITDA is a Non-GAAP financial measure. Reconciliation of this to the most comparable |
GAAP financial measure can be found at the end of this presentation
Fixed and Volume-Based Expenses
($ in millions)
Fixed D&A Special / Other Volume-based $249 $14 $21
$37 $177 2002 $264 $29 $33
$202
2003 $1 $306
$61
$46 $195 2004 $4 $334
$71
$55 $201 2005 $7 $247
$55
$4 $41
$147
Nine Mos. 2005 $253
$62
$1 $43
$147
Nine Mos. 2006
Note: Special / Other expenses include loss impairment on long-lived assets, litigation, and severance and related costs
Growing Operating Leverage
New products, wider distribution of existing products
Education programs
Fixed-cost control
Global expansion, broader tech efforts
Price increases
Third Quarter 2006
3Q06 vs. 3Q05 (millions of dollars, thousands of contracts)
35%
23%
45%
146%
49.6% 1 $48.8 $163.0
3,163 2,582 $112.2 29.3%
$19.8
Average Daily Volume Revenue Operating Margin Net Income
05 06
Third Quarter 2006 compared to prior year:
Average daily volume up 23%
Average rate per contract up 23%
Revenue up 45%
Operating margin of 49.6% vs. 29.3%
Net income increase of 146%
Nine Months Ended September 30, 2006 and 2005
YTD 06 vs. YTD 05 (millions of dollars, thousands of contracts)
33% $127.4
15% 117% 45.6% $465.1
3,191 $349.2
2,768 29.4% $58.8
Average Daily Volume Revenue Operating Margin Net Income
05 06
Nine months 06 compared to 05:
Average daily volume up 15%
Revenue up 33%
Operating margin of 45.6% vs. 29.4%
Net income increase of 117%
Future Opportunities
CME and CBOT to Merge, Creating a $25 Billion Premier Global Derivatives Exchange
CME and CBOT Merger Transaction Highlights
Strategically Attractive
Solidifies combined company’s status as the premier global exchange Expands presence in attractive derivatives markets Positions combined company for continued growth Creates operational and cost efficiencies for customers
Financially Compelling $125+ million in estimated annual cost savings expected to be achieved year two post closing Expected to be accretive to earnings 12 – 18 months post close Potential revenue opportunities Enhances operating leverage
CME and CBOT Merger Transaction Summary
Price Per Share: $151.28 per share(1)
Aggregate Consideration: $8.0 billion
For each CBOT share, shareholders will receive 0.3006 CME shares, or they may elect Cash with value equal to 0.3006 CME shares based on the
Consideration Mix: ten-day average CME closing price ending 2 days prior to close (subject to proration based on a maximum of $3 billion of cash)
CME Shareholders: minimum of 69% (based on elections)
Pro Forma Ownership:
CBOT Shareholders: up to 31% (based on elections)
Expected Accretion: Accretive to earnings 12—18 months after the closing
29 Directors to include 20 Directors from CME and 9 Directors from
Board of Directors:
CBOT
Terrence A. Duffy, Chairman; Charles P. Carey, Vice-Chairman; Craig S.
Management:
Donohue, CEO; Bernard W. Dan, Special Advisor
Core Rights: CME and CBOT members’ existing core trading rights will be preserved
Anticipated Closing: Mid-2007 (subject to regulatory, shareholder and CBOT member approvals)
Reciprocal Break-Up Fee: $240 million
| (1) |
|
Based on CME’s closing price of $503.25 on October 16, 2006 |
Roadmap to Completion
File S-4 with SEC
CBOT and CME shareholder and CBOT member approvals
Regulatory approvals
Transaction expected to close mid-2007
CBOT: Growth Strategies
New products, new services
Global expansion
Strategic alliances
CBOT: Looking to the Future
Strong Market Position
Expanding Operating Leverage
Scalable Business Platform
Growth Strategies
Multiple Market Opportunities
MULTIPLE OPPORTUNITIES FOR GROWTH
Supplementary Information
2000 2001 2002 2003 2004 2005 1Q06 2Q06 3Q06
Non-GAAP Financial Measure—EBITDA $37 $62 $101 $90 $126 $190 $73 $88 $94
Deduct:
Interest Expense (7) (7) (5) (4) (5) (3) (1) (1) -
Income Tax Expense (1) (5) (24) (22) (33) (55) (23) (29) (32)
Depreciation and Amortization Expense (41) (44) (38) (33) (46) (55) (14) (15) (13)
Comparable GAAP Measure—Net Income ($12) $6 $34 $31 $42 $77 $35 $43 $49
Reconciliation of Non-GAAP Measure Earnings before Interest, Tax, and Depreciation and Amortization Expense (EBITDA) to Net Income ($ in millions)
Financial Options - - % Electronic
100 75 50 25 0
14 24 28 29 33 54 85 71 80
4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06*
20 % 18
16 14 12 10 8 6 4 2 0
*Through Oct. 23
Agriculture Complex Growth Rate
ADV (000s) Growth vs. Pr Yr
700 600 500 400 300 200 100 0
373 404 350 331 412 529 490 686
1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06*
140%
120
100 80 60 40 20 0 -20
*Through Oct. 23