CBOE agrees to buy market operator Bats for US$3.2 billion

LONDON (BLOOMBERG) - CBOE Holdings said it agreed to buy Bats Global Markets for about US$3.2 billion (S$ 4.3 billion) in a deal that would tie an electronic upstart together with the owner of the Chicago Board Options Exchange.

Edward Tilly, chief executive officer at CBOE Holdings, will keep that role in the combined company, while Bats chief Chris Concannon will become president and chief operating officer, the companies said in a statement on Monday. The market operators plan to use Bats technology and will base the firm in Chicago.

The deal, a mix of cash and stock, adds to a flurry of dealmaking in the exchange-operator industry - Deutsche Boerse's US$14 billion planned purchase of London Stock Exchange Group would be among the biggest in the industry's history.

Shares in Bats have surged 20 per cent since Sept. 22, the day before Bloomberg News reported the companies were in talks. They jumped 2.2 per cent in premarket trading on Monday.

The two companies have vastly different roots. Bats was founded in 2005 by high-speed trader David Cummings of Tradebot Systems, and its trading software is regarded as among the industry's best. Bats went public in April.

CBOE still runs open-outcry pits in Chicago, a throwback to an era when humans instead of computers drove trading - though it does run the all-electronic C2 exchange, too.

CBOE said it will cut costs in part by moving to a single trading platform. The companies expect annual cost synergies of US$50 million within three years of the transaction's completion. Those will increase to US$65 million within five years.

The deal, which still requires shareholder and regulatory approval, is expected to close in the first half of 2017, the companies said.