New York: IntercontinentalExchange Inc., the 12-year-old energy and commodity futures bourse, agreed to acquire NYSE Euronext for cash and stock worth $8.2 billion, moving to take control of the world’s biggest equities market.
Atlanta-based IntercontinentalExchange, will pay $33.12 a share for the owner of the New York Stock Exchange, 38% above Wednesday’s closing price, according to a statement on Thursday. Both boards approved the proposal and the companies expect to complete the transaction in the second half of 2013. Last year, the US blocked a joint hostile bid by IntercontinentalExchange and Nasdaq OMX Group Inc. for the New York-based company on concern the combination would dominate US stock listings.
Merging NYSE Euronext, which owns the biggest exchanges by value of listings in the US, France and the Netherlands, with the second-largest futures market underscores both the growing importance of derivatives and the diminishing influence of the 220-year-old NYSE. The Big Board, once the benchmark for global free markets, has seen its share of trading in stocks listed on the exchange decline to 21% from 82%.
“Not only are they losing volume, they’re also getting squeezed in their margins because of all these competitors who have different corporate structures”, Thomas Caldwell, who oversees about $1 billion as chairman and chief executive of Toronto-based Caldwell Securities Ltd, said in a telephone interview. His firm owns shares of NYSE and ICE.
Jeffrey Sprecher, CEO of IntercontinentalExchange, will head the combined company, with NYSE CEO Duncan Niederauer becoming president. The companies plan to explore an initial public offering for NYSE’s European equity unit. IntercontinentalExchange’s market value has grown to $9.3 billion as its shares rose 7.4% in 2012, data compiled by Bloomberg show.
A takeover would mark an unusual success after more than $32 billion of exchange takeovers failed since October 2010.
Under the terms of the agreement, NYSE shareholders can elect to take $33.12 in cash, 0.2581 share of IntercontinentalExchange, or a mix of $11.27 in cash and 0.1703 stock, the companies said on Thursday.
Sprecher joined Nasdaq OMX CEO Robert Greifeld in an unsolicited bid for NYSE Euronext in April 2011. The offer, scuttled by the justice department seven weeks later, sought to derail NYSE’s pending merger agreement with Deutsche Boerse AG.
The merger with Deutsche Boerse was rejected by European competition authorities in February. NYSE Euronext subsequently began a cost-cutting plan known as Project 14 and said on 6 November that it generated savings of $82 million so far this year. In addition to the NYSE, the company operates bourses in Paris, Lisbon, Brussels and Amsterdam and London-based Liffe, Europe’s second-largest derivatives market. NYSE adjusted earnings were $653 million in 2011 on revenue of $4.6 billion. The company posted profit of $357 million in the nine months through 30 September, down 32% from the same period last year.
“The rationale for the deal is to cut costs in an industry that is encountering reduced volumes and an increased regulatory burden”, Peter Lenardos, an exchange analyst at RBC Capital Markets in London, said on Thursday. “The transaction is also for ICE to gain access to European derivatives as NYSE is the owner of Liffe, one of Europe’s two prominent derivative exchanges,” he said.
The Big Board’s reputation faded in the last decade when scandals highlighted the potential for collusion on the NYSE floor and faster technology reduced the need for middlemen.
“The combined company could enhance the products offered across asset classes, cross-market to different client bases with different needs, expand ICE’s reach in Europe to NYSE’s exchanges and drastically reduce the cost of futures regulation”, Joseph Greco, an MD at Meridian Equity Partners, a New York-based broker that has traders on the NYSE floor, said. “For NYSE it would augment the futures and derivatives footprint domestically.” Bloomberg