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CHICAGO BOARD OPTIONS EXCHANGE Update

The Chicago Board Options Exchange (“CBOE”) intends to become a public company. The target date is June 15th. This is very good news for our investors.

 

To make the initial public offering (“IPO”) of its shares a reality, the CBOE has filed the necessary initial documents with the U.S. Securities and Exchange Commission (“SEC”).

 

The following comments are intended to help Caldwell’s investors better understand our firm’s impressions of how the CBOE IPO’s will work. All of it is subject to change. This is not intended as a solicitation to purchase CBOE shares. Please consult the documents on file with the SEC for a full account of the demutualization and IPO process.

 

The intended steps toward the CBOE’s IPO are as follows:

 

  1. 1) May 21st: CBOE member vote
  2. 2) Late May / Early June: Marketing of the IPO by a syndicate of 18 investment banks
  3. 3) June 15th: The CBOE becomes a public company

 

Terms of the deal:

 

Each CBOE seat owner will receive $100,000 in cash and 80,000 CBOE shares.

 

In total, the CBOE members will receive 80% of the new company. Approximately 2% and 18% will be reserved for the CBOE’s management and the former members of the Chicago Board of Trade (“CBOT”), respectively.

 

There will be a total of approximately 100 million CBOE shares issued.

 

The price of the IPO is unknown at present and will not be known until the entire deal is finalized. The minimum price that the CBOE members will authorize is $25 per share. Our expectation is that the IPO price will exceed this amount.

 

The shares are expected to be listed on NASDAQ and trade under the symbol “CBOE”.

 

There will be 11.7 million shares sold in the IPO, 9.6 million by the CBOE and 2.1 million by the CBOE and CBOT members. The underwriters may increase the number of shares by up to 15%.

 

There will be approximately 102.6 million shares outstanding after the IPO.

 

CBOE/CBOT members choosing not to sell their shares into the IPO will not be able to sell them right away in the market. There will be a 6 month hold on half of the shares and a 12 month hold on the other half;

 

HOWEVER,

 

The CBOE intends to use the money it receives from the issue of treasury shares to buy back some of these shares that are otherwise subject to a hold. The CBOE’s plan is to make a tender offer in the context of the market between 1 and 4 months after the IPO.

 

The CBOE intends to initiate a quarterly dividend starting in the third quarter of 2010. The dividend is expected to be 20-30% of the previous year�s adjusted net earnings.

 

The CBOE current seat price values the entire exchange at $2.6 billion.

 

By comparing the CBOE to other publicly traded derivatives exchanges, we estimate the fair value of the CBOE to be between $4 billion and $6 billion. Whether the CBOE trades within, above or below this range will depend on many factors including investors’ perception of the exchange sector and the CBOE’s attractiveness as a takeover candidate.

 

We anticipate that IPO price for the CBOE will exceed the current price for seats; however, the full value of the exchange will not be realized until after its shares begin trading on the market.

 

 

 

 

Please feel free to contact our firm with any questions about our funds and the CBOE demutualization process.

Net Assets per share
as of December 7, 2018
$4.24
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