The Chicago Board Options Exchange will offer to buy back shares from former members shortly after its planned initial public offering (IPO) next year, said a source close to the company.
The offer would allow seatholders to avoid hanging on to shares for the duration of the one-year lock-up period, and is meant to win members' support for the IPO that CBOE announced this month, said the source, who requested anonymity because he wasn't authorized to reveal the details.
Members of the CBOE, the last big U.S. member-owned exchange, need to approve its plan to convert into a public company by mid-2010.
CBOE is expected to present the details of its IPO plan to members in the next couple of months following a protracted legal battle with Chicago Board Options Exchange members over ownership rights that delayed its long-running plan to demutualize.
According to the source, the CBOE would offer to buy shares from its former members at the market price sometime shortly after the IPO, and before the lock-up period expires. It was unclear when the exchange would make that offer.
Under the lock-up agreement, members holding newly issued shares must hang on to half of them until six months after the IPO, according to regulatory filings and a company circular. They could sell the remaining half a year after the IPO.
The plan is unusual and potentially controversial, especially if the CBOE buys back shares from former members at a much higher price than it sold them in the public offering.
The buyback would also likely impact the share price.
A CBOE spokesperson did not comment on the plan, pointing instead to a December 10 circular from Chairman William Brodsky to members, which said CBOE would use IPO proceeds partly for the repurchase of shares issued to members.
Takeover speculation has surrounded CBOE for years and resurfaced as recently as October when a media report said fellow Chicago exchange operator CME Group Inc was in informal talk to buy it. Analysts and members said CBOE's IPO plan could kick start merger talks.
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