Under the agreement, CME Group will pay $126 million for the exchange, and members additionally will receive a special distribution of excess cash, concurrent with the closing.
The KCBT, which is organized as a for-profit corporation, is the leading futures market for hard red winter wheat. Under the agreement, the CME committed to maintain for at least three years a committee of KCBT market participants to advise on hard winter contract terms and conditions. The CME also agreed to “maintain the historic KCBT trading floor in Kansas City” for at least six months.
CME Group offers a range of futures, operations and other derivatives across a range of asset classes, including interest rates, equities, foreign exchange, energy, agricultural commodities, metals, weather and real estate. CME Group is a publically traded company listed on Nasdaq. The company has a market capitalization of $19.1 billion.
“Global agricultural market participants continue to depend on liquid, transparent risk management tools for price discovery in both established and emerging economies,” said Terry Duffy, CME Group executive chairman and president. “Building on two rich legacies, the combination of KCBT hard red winter wheat products with our deep and liquid CBOT soft red winter wheat futures and options markets will provide new trading opportunities for market participants around the world — both on the trading floor and on the screen.”
Phupinder Gill, chief executive officer of the CME Group, emphasized the complementary nature of the Chicago and Kansas City wheat contracts.
“While the CBOT and KCBT wheat contracts are very distinct products with different uses, the ability for producers and commercial participants to hedge their risk in both key benchmarks in one place will produce cross-margining benefits and other capital efficiencies,” he said. “In addition, product development opportunities here are great for both of our client bases – not only in futures, but also in options that can help market participants manage risk at a reduced cost during targeted timeframes in the crop year.”
Jeffrey Borchardt, president and chief executive officer of the 156-year-old Kansas City exchange, emphasized the degree to which trading in wheat futures and options has changed through its history, most recently technologically.
“CME Group’s position as a global leader in electronic trading access and capability makes them an ideal partner for the future of KCBT’s hard red winter wheat contract, the global benchmark for bread wheat,” Borchardt said.
This sentiment was echoed by Steven K. Campbell, the KCBT chairman, who noted rising operating costs and regulatory requirements as keys to the decision.
Noting the “leadership and resources” of the CME Group, Campbell said the Kansas City hard winter contract would be a “logical and valuable addition to CME Group’s global grain complex.”
Campbell said the agreement followed a process in which interest from a number of qualified and interested parties was explored.
The KCBT board unanimously approved the transaction, which is expected to close later this year, pending approval by KCBT shareholders and regulators, expiration of the applicable Hart-Scott-Rodino waiting period and completion of normal closing conditions.
While the CME Group long has been the hub of most grain and oilseeds futures trading in the United States, additional viable wheat contracts have been traded since the 19th century in Kansas City and Minneapolis. The CME noted that hard winter wheat, traded in Kansas City, is the “predominant variety grown in the United States and is also the leading variety sold through export.”
“Customers around the globe will continue to benefit from access to underlying CBOT and KCBT wheat contracts,” the CME said.
With the completion of the transaction, the Minneapolis Grain Exchange, which trades hard spring wheat, will be the only remaining independent wheat futures exchange in the United States.
The KCBT was advised in the transaction by George K. Baum Capital Advisors and the law firm of Husch Blackwell. The CME was advised by the law firm of Skadden, Arps, Slate, Meagher & Flom.