CBOE, Bats Deal Viewed Favorably By Jefferies

CBOE Holdings, Inc (NASDAQ: CBOE) announced on September 26 that it was acquiring Bats Global Markets Inc (BATS: BATS) for $3.2 billion or $32.50 per share.

Jefferies’ Daniel T. Fannon maintains a Hold rating on CBOE Holdings, with a price target of $62.

Favorable Deal

Fannon expects the deal to be about 6 percent EPS accretive in 2017 and 20 percent in 2018.

“We view this deal favorably as it likely creates the industry's strongest low-cost competitor, and provides CBOE an international platform to expand upon,” the analyst mentioned.

Related Link: CBOE Buying Bats Makes Sense, Just Not Strategically

CBOE Holdings intends to finance $1 billion of the total deal amount via debt, with the rest $2.2 billion being paid through equity.

The company will also assume about $650 million of debt from BATS as part of the deal, leading to pro-forma debt of $1.65 billion.

“In the meantime, CBOE is suspending share repurchases but is leaving the dividend intact,” Fannon stated.

Cost Synergies

The acquisition is expected to close by mid-2017, with CBOE expected $50 million in cost synergies within three years of the deal closing and $65 million within five years of the deal closing.

“We believe there is limited regulatory risk to the deal. Outside of multiple-listed options on equities and ETFs, there is little competitive overlap,” the analyst explained.

The combined entity would have about 30 percent market share in the multiply-listed options business.

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