CME Group Inc.
) announced the completion of the acquisition of the rival
exchange - Kansas City Board of Trade (KCBT) - for cash payment
of $126 million. The deal was inked in October this year.
The KCBT acquisition is another attempt by CME Group to expand
its band of grain future contracts portfolio. With this
acquisition, CME Group has gained control over all the wheat
futures in the US. The deal also provides immense scope of
product development to the clientele of both the parties.
Meanwhile, KCBT has begun active trading futures of hard red
winter wheat on the CME Globex platform. However, the complete
integration of the business is scheduled to take place in the
first quarter of 2013.
KCBT is the leading exchange for high-quality hard red winter
wheat futures and options contracts. Hence, it can be stated that
CME Group has successfully bagged an important market since the
company was dealing in low quality hard red winter wheat before
this aforesaid acquisition. All types of hard red winter wheat
are expected to be 44% of total wheat production in the US this
year. Moreover, the rising demand for such products amid the
ongoing regulatory environment underscores the significance of
Additionally, operational expansion into agricultural futures
is crucial for CME's sustainability and maintaining its
competitive leverage. The acquisition bodes well for the company
given its rampant expansion into the futures of grains as well as
other agricultural and non-agricultural commodities.
CME Group has been consistently making efforts to maintain a
strong position in the global derivative market. The company is
also seeking to bid for other important exchanges such as
Minneapolis, the only wheat exchange left untapped by the
Such agricultural products are unraveling new growth avenues
that are being developed rapidly and equally eyed by arch-rivals
), who was also seeking the acquisition of KCBT to maintain its
dwindling position in the agricultural markets business.
We believe that the KCBT acquisition was crucial for providing
some cushion to CME Group's fraying trading volumes, although it
instigated cash outlay. The company carries a Zacks Rank #4 that
implies a short-term Sell rating, while the long-term
recommendation stands at Neutral.
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