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Bats acquisition to increase CBOE's exposure to competitive asset classes, RBC analyst says

RBC Capital Markets analyst Andrew Bond downgradedCBOE Holdings Inc. to"sector perform" from "outperform" after the companysaid it would acquireBats Global Markets Inc.

Bond said the acquisition will significantly increase CBOE'sexposure to highly competitive asset classes, such as cash equities andmulti-listed options.

The analyst said the company's target of achieving $50million in synergies within three years of the closing could be difficult toachieve given that the company has no experience with large-scale acquisitions.

"In our view, the synergies are aggressive and indicatedeep cuts to the business," the analyst wrote. "Further, we view thepotential for culture disruption as high."

Bond views the acquisition as a defensive move by CBOE toretain its independence but added that CBOE could still be a potential targetfor acquirers. The deal is not expected to close until at least the first halfof 2017 and a potential shareholder vote on the deal is four to five monthsaway, giving potential acquirers enough time to make a play, Bond said.

Bond lowered his price target on the company's stock to $68from $78. His adjusted EPS estimates are $2.42 for 2016, $2.86 for 2017 and$3.11 for 2018.

The analyst upgraded Bats to "sector perform" from"underperform" following the deal announcement.

Bond said the deal could still be terminated if anotherexchange attempts to acquire CBOE, but "with two large scale exchangedeals now in progress and further consolidation likely, we believe sectormultiples are going to continue to re-rate higher, which is a positive forBATS, even if the deal is not completed," he added.

The analyst raised his price target to $32.50 on Bats' stockto match the bid by CBOE. His EPS estimates are $1.32 for 2016, $1.37 for 2017and $1.49 for 2018.