Two major proxy advisory services have recommended that GFI Group shareholders vote against the proposed buyout by CME Group.
CME and BGC Partners have been locked in a bidding war for an acquisition of GFI for the past several months. Both companies raised their bids on Tuesday as a Jan. 27 final vote by shareholders looms on the horizon.
Both Glass, Lewis, & Co., LLC and Institutional Shareholder Services (ISS) issued recommendations this week against the CME proposal.
“It is not at all clear that unaffiliated shareholders incur any greater downside risk in holding out for the economically superior offer from this ongoing bidding war, “ the ISS analysis stated. “Shareholders should vote against the proposed transaction on its current terms, and if that offer does not improve to at least parity with the BGC bid, tender into the BGC offer instead.”
In its analysis according to Seeking Alpha, Glass Lewis noted: "In hindsight, it seems readily apparent the GFI board's flawed and conflicted process failed to extract any semblance of maximum value or a favorable price, and further failed to fully incorporate those bidders willing to offer decidedly greater value to GFI investors."
CME’s bid is at $5.85 per share in stock and cash, lower than BGC Partners’ all-cash $6.10 per share offer. CME’s revised offer also includes an agreement for the GFI Management Consortium to forego approximately $40 million that was part of the original offer, a point that has been relatively contentious.
BGC Chairman and CEO Howard Lutnick stated, “We continue to be fully committed to completing our tender offer and urge shareholders to protect the value of their investment in GFI by voting against all the proposals related to the CME transaction,” in a BCG press release.
CME has not yet commented on the ISS and Glass Lewis recommendations.
After CME originally increased their bid on Jan. 15, Niamh Alexander and Kyle Voigt predicted in a Keefe, Bruyette, & Woods research report that if BGC kept its bid the same, the CME/GFI deal would likely pass at the Jan. 27 meeting, “given the uncertainties of a potentially long drawn-out proxy battle that BGC’s offer might entail.”
With BGC’s newly raised offer and no counter offer from CME, that all seems to be up in the air as of Friday.
“There’s significant risk with a hostile tender in this industry where the brokerage staff are a big part of the value of the business,” Alexander’s report states.
Both CME and GFI could stand to benefit in different ways from the acquisition of GFI Group. When the transaction was announced on July 30, GFI stock went up to $4.55 per share from $3.11. The current offer is at an 88% premium above the original price.
CME could be waiting until the last moment prior to Tuesday’s shareholder vote to improve its offer in order to limit BCG’s ability to react and improve its offer before the vote.
As of Tuesday morning, neither group's offer had been changed. Michael Gooch, founder of GFI Group Inc., encouraged investors to support the CME proposal rather than BGC's higher bid.
"You can opt for a 'bird in the hand' with CME, or hold out for 'BGC in the bush,'" Gooch wrote in an open letter. With the proposed CME deal, Gooch himself would be purchasing part of CFI.
When battling the Intercontinental Exchange for the acquisition of the Chicago Board of Trade in 2007, CME increased its offer on the eve of the shareholder vote, which caused the CBOT’s largest shareholder to end its opposition to the deal and left ICE little time to respond. ICE did not up its bid and the merger was approved overwhelmingly by shareholders.
This story was updated with new information on Jan. 27.