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updated 5/11/2007 2:00:00 PM ET 2007-05-11T18:00:00

Chicago Mercantile Exchange Holdings Inc. sweetened its offer for CBOT Holdings Inc. by 16 percent on Friday as the futures exchange attempts to stave off a counteroffer from IntercontinentalExchange Holdings Inc.

Chicago Mercantile Exchange raised its offer to buy CBOT Holdings, which operates the Chicago Board of Trade, to $9.21 billion, or $174.28 per share, in stock. CME's original offer in October valued the Chicago Board of Trade at $149.68 per share, or $7.91 billion.

The agreement faces a rival offer from ICE, an Atlanta-based electronic exchange that earlier this year bought the New York Board of Trade. ICE in March launched a takeover bid that values the Chicago Board of Trade at $10.12 billion, or $191.49 per share.

These exchanges host trading of futures and derivatives, which are contracts that allow investors to bet on gold, oil, stock indexes, interest rates and other items without owning them by tying their value to the price an underlying commodity.

As the volume of derivatives trading around the world accelerates, exchanges are trying to grow so they can offer more products and contracts and operate with lower costs. A combined CME and CBOT would host trading of almost 9 million contracts per day, representing $4.2 trillion worth of underlying commodities.

Chicago Board of Trade Chairman Charlie Carey said it makes more sense for CBOT Holdings to join forces with the Chicago Mercantile Exchange because the two trading platforms share a service to clear the contracts traded on its floors. A CME-CBOT tie-up poses "significantly less integration risk" than a deal with ICE, he said.

CME raised its outlook for how much the two exchanges can save by working together. The exchange now expects $150 million in annual pretax savings within two years, compared with a previous forecast for savings of $125 million.

The exchange threw in an additional sweetener: If the deal closes, the combined company will offer to buy back up to $3.5 billion of stock, or 12 percent of outstanding shares, for $560 per share. CME shareholders and current CBOT shareholders who would become CME shareholders under the deal are eligible to sell their stock under the tender offer.

The buyback offer replaces a $3 billion feature of the original proposal, which allowed some CBOT shareholders to receive cash instead of CME stock.

CME said it plans to finance the takeover using existing cash plus a $2.5 billion loan from Lehman Brothers.

The two Chicago-based exchanges expect to close the deal by the middle of the year, pending shareholder and regulatory approvals. Shareholders are set to vote on the deal July 9.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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