By KEVIN WALKER
CHICAGO, Ill. — The CME Group (CME) and Kansas City Board of Trade (KCBT) announced last week CME will acquire KCBT. According to the statement, KCBT is the leading futures market for hard red winter (HRW) wheat. CME is the parent company for the Chicago Board of Trade (CBOT).
Under what’s described as a definitive agreement, CME will pay $126 million in cash for KCBT. KCBT has also agreed to make a special distribution of excess cash to members concurrent with closing, which is expected to occur later this year. KCBT’s board of directors has unanimously approved the transaction, pending approval by its shareholders and regulators, expiration of the applicable Hart-Scott-Rodino waiting period and completion of customary closing conditions, the statement said.
“We’ve had interest expressed in the Kansas City Board of Trade for years,” said Jeff Borchardt, president and CEO of KCBT.
“The board felt it prudent to evaluate what additional shareholder value there might be in an alliance. In the end, it was decided that the CME proposal was a value-added proposal.”
CME has committed to maintain a committee made up of KCBT market participants to advise on HRW wheat contract terms and conditions for at least three years. Borchardt said in recent years more “investor types” have become involved in KCBT and they have focused on the need to achieve efficiencies and provide more shareholder value.
He said he doesn’t know if any employees are going to be laid off; however, he said there will likely be a consolidation of clearing services. “CME will be able to provide better service as well, because it will be able to add product strategies for trading between exchange products,” he stated.
There was some question last week about how long floor trading will continue under the new owner, since the joint statement said the historic KCBT trading floor in Kansas City was only guaranteed to remain open for six months. But Borchardt said he doesn’t see it that way.
“The six months isn’t a drop-dead date,” he said. “At the CME there’s still an open floor. They see a value in it. Hopefully, they’ll see a value in it here, too.”
Borchardt went on to explain the six-month date is something that was given for the sake of convenience, but it doesn’t mean floor trading is going to end in six months or that it’s going to end at any time in the foreseeable future.
There are evidently concerns in some quarters about the deal, however. In a published report Justin Gilpin, CEO of the Kansas Wheat Commission, said “hedgers and users of the Kansas City Board of Trade hard red winter wheat futures market recognize it and use it for what it is – the pricing mechanism for bread wheat. I don’t see that changing in the near future. But longer-term, like everything in our industry, it may get interesting.”
The report goes on to say grain traders are “worried” about the acquisition because there are “distinct differences” in the way KCBT and CBOT “approach” wheat trading. Since Gilpin was on the road last Friday, he couldn’t provide further comment for this story.
A spokesman for the CME Group, however, said the existence of the standing committee for three years should be “reassuring” to anyone with such concerns.
“There’s going to be some loss in continuity, but as long as the contracts don’t change I don’t see it as a problem,” said Kim Anderson, an agricultural economist at Oklahoma State University. “I would say that electronic trading is the way we’re going to go with everything. I would say it’s a more efficient way of doing things.
“The KCBT has both an open-cry floor and electronic contracts. They’ve been trading electronically for several years. I hate to see them go to Chicago. The KCBT has been significantly more helpful to me for research and academic purposes than CME or other exchanges. I’m going to miss that personal stuff. They’re out there in the industry, and I’m going to miss it.”