* Nasdaq's going-private talks put option on radar -Tilly
* CBOE shares rise to highest level since 2010 IPO
* CBOE not undervalued compared with peers -analyst
By Ann Saphir
Feb 14 The Chicago Board Options Exchange's
parent company, which went public in 2010 after years of effort,
would consider going private again if that would benefit
shareholders, a top executive said on Thursday.
Monday's news that private equity firm Carlyle Group LP
had recently approached stock exchange operator Nasdaq
OMX Group Inc about going private raised the question
of whether CBOE Holdings Inc might consider a similar
Doing so "would not have been a logical exploratory change
in governance and ownership structure," CBOE's chief operating
officer, Edward Tilly, told a Credit Suisse financial services
forum on Thursday.
Such a move would go against the past decade's trend of
exchange operators seeking to become publicly listed companies.
But in the wake of the revelation of the Nasdaq-Carlyle
talks, said Tilly, "We still must act and are looking forward to
acting in the best interest of our stockholders. If valuations
as a result of conversations with Carlyle lift all boats, so be
it ... We would have to entertain changes in our structure."
CBOE shares rose to a record $35.87 on Thursday, before
paring gains to close at $35.69, up 2 percent on the day, on the
CBOE Chief Executive Bill Brodsky waged a years-long
campaign to convert CBOE from a private club run by members to a
public company run for profit. Reversing that hard-won victory
seems an unlikely step for Tilly, who is in line to take over as
CEO in May.
Going public allowed CBOE for the first time in its nearly
40-year history to make strategic decisions without the
cumbersome process of consulting hundreds of members, and to
better compete in the crowded field of U.S. stock-options
"We are getting into a nice rhythm as a public company,"
said Tilly, who joked that he would not have had the chance to
leave Chicago's cold winter to speak at the investor forum,
taking place in warm Miami, if CBOE were a private company.
Tilly's comments fell short of suggesting he is eager to
take the exchange private, and a CBOE spokeswoman declined to
comment on whether the company has engaged in any conversations
along those lines.
But Tilly left the door open to the possibility in a way
that the chief of Chicago's other major exchange operator, in
remarks to the same forum, did not.
CME Group Inc's CEO, Phupinder Gill, said on Tuesday
that he did not see "the advantage of going private at this
"I do have a sense that something is happening with CBOE,
because the stock has just been bit by bit clawing its way
forward," said Thomas Caldwell, chairman of Toronto's Caldwell
Securities and the owner of about 1.8 million CBOE shares.
ACTIVE OPTIONS TRADING
Citing the regulatory expense of being a public U.S.
company, and noting that other firms, including struggling
computer company Dell Inc, have moved to go private,
Caldwell said he could understand the move from a cost
"And it would also drag any potential suitor who was lurking
in the bushes, out," he added.
The talks between Carlyle and Nasdaq fell apart over a
disagreement on price, sources told Reuters on Monday.
CBOE would need to see an offer of $38 to $40 a share in
order to get investors to tender their stock, Caldwell said.
"If (Tilly) plans go private at an exorbitant price, I am
wildly in favor," Caldwell said. "I certainly can understand it,
given the costs and pitfalls of being a public company."
Some investors saw CBOE privatization as a long shot. Unlike
Nasdaq, which competes in the highly commoditized world of stock
trading, CBOE offers a stable of exclusive, popular and highly
profitable contracts tied to volatility.
Trading in options on CBOE's fear gauge, the VIX volatility
index, was up 14 percent in 2012, compared with a 19
percent volume drop in U.S. stock trading.
That has helped boost CBOE's price-to-earnings ratio above
20, on par with NYSE Euronext and CME Group.
Nasdaq shares are trading at just 15 times earnings, making
the company a more likely candidate for privatization because it
is undervalued relative to peers, according to Herb Kurlan,
managing member of Pykrete Capital Group, an investment advisory
group based in San Francisco.
For CBOE, he said, "it wouldn't seem that going private
would be considered unless they have some major restructuring or
other activity planned that would put a damper on shareholder
value and that being private would allow them more flexibility
like the situation in Dell Inc."
Options trading on CBOE Holdings was impressive on Thursday.
Overall volume was 5.4 times the recent daily average, with
14,000 calls and 1,361 puts traded near the close, according to
options analytics firm Trade Alert.
More than half of the activity was driven by one call spread
trade in the June options which reflected expectations for
further gains in the shares through the first half of the year,
said WhatsTrading.com options strategist Frederic Ruffy.
Calls are bets on a rise in the stock's value; puts provide
insurance against a drop.