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Tickers in this Article: BOT, ICE, CME, NYX, NEWC, NFI, GS, BAC

Shareholders for the Chicago Board of Trade (NYSE: BOT) are benefiting from what appears to be the start of a bidding war. Its shares jumped from $162.01 to $190.00 this week (a gain of 18%) as a result of new offer to merge from InterContinental Exchange, Inc. (NYSE: ICE).

Interestingly enough, back in the fourth quarter of 2006, the Chicago Board of Trade and the Chicago Mercantile Exchange (NYSE: CME) had agreed to merge under a deal worth $8 billion. The terms of InterContinental Exchange's offer is to perform a stock merger where 1 CBOT share would yield approximately 1.47 ICE shares. In total the deal is worth an estimated $9.9 billion.

ICE's surprise move to acquire the CBOT not only cements the exchange's intention to become a significant figure in the world of derivatives trading (in the beginning of 2006, ICE had acquired the New York Board of Trade), but it also reinforces the movement of how the major exchanges are seeking counterparts to merge with in order increase their operations. Case in point, the NYSE (NYSE: NYX) is on the verge of finishing up its acquisition of Euronext.

Seeing how the ICE's deal is valued at roughly $187 per share, the market is an anticipating that the at least one other offer will emerge, because it is unlikely that the CME will back down on this deal after all the preliminary work that has been done. However, it is still very difficult to say who the CBOT will end with. On one hand, the CME has the difficult task of proving to the US Department of Justice that the merger is not an issue of antitrust (some figures suggest that the CME-CBOT merger will allow the combined company to have over three-quarters of the US futures market), but it does have the support of the state as it is fairly certain that the state of Illinois wouldn't mind having the largest derivatives market.

It should be interesting to see what happens in the coming weeks as officials from CBOT are currently tight lipped regarding the current state of affairs and have only announced that CBOT's board will vote on the issue in the beginning of April.


Not surprisingly, the most noteworthy loser this week is New Century Financial Corporation (OTC: NEWC). At one point on Wednesday, its share price plummet from $1.65 to $0.70 (or a decline of over 57.5%), but it has since climbed back a bit north of $2.00.
However, the company was de-listed from the NYSE and is now trading in the pink sheets. Similar to NovaStar Financial's (NYSE: NFI) situation from a few weeks ago, this subprime mortgage lender is feeling the brunt of the subprime mortgage meltdown.

Due to the rising level of subprime borrower defaults, many lenders are facing liquidity problems regarding repaying debts owed to their own warehouse lenders. It was this very problem that spurred the initial sell off of New Century stock. Concerns regarding New Century and other subprime lenders are mounting as most fear the the entire subprime mortgage industry collapsing. If New Century does in fact declare bankruptcy within the near future, many big name lenders that catered to it could stand to lose millions that were owed to them.

The situation looks grimmer for New Century as other lenders like Goldman Sachs (NYSE: GS) and Bank of America (NYSE: BAC) have decided to withdraw from pending loan agreements with New Century. That was a wise decision on the part of the new lenders. It's always a good idea to not board a sinking ship. Especially when the downside risk dramatically overshadows the upside benefit.

It is quite apparent that the market was rattled by this week's subprime shake up. On Tuesday alone, the Dow fell over 200 points as market initiated a sell off as fears started to mount. More likely than not, in hindsight, much of the sell-off was an irrational overreaction. As even New Century rebounded a reasonable amount at the end of the week, but the issue regarding the state of subprime lending is far from over.

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