By Edgar Ortega, Bloomberg
New York: NYSE Euronext, owner of exchanges that trade stocks and derivatives on both sides of the Atlantic, may buy a US futures market to compete better with rivals, two Wall Street analysts said on 17 May.
An acquisition may help the company broaden its derivatives trading business beyond Europe and lure customers from Chicago Mercantile Exchange Holdings Inc. and Deutsche Boerse AG. NYSE Euronext might pursue an acquisition of Intercontinental Exchange Inc., Merrill Lynch & Co. analyst Patrick Pinschmidt wrote, based on recent comments made by Chief Financial Officer Nelson Chai.
“With a small number of eligible targets, we think NYSE needs to act sooner rather than later,” wrote Worthington, who has an “underweight” rating on shares of NYSE Euronext. “Now is the NYSE’s best opportunity to buy its way into the futures market.”
NYSE Euronext Chief Executive Officer John Thain has said he wants to bolster the company’s derivatives trading business by expanding in the US Trading in contracts for commodities. Interest rates has increased faster than investors’ demand for stocks. It’s also more profitable for the exchange which may collect fees from settling trades completed by brokers.
A deal would be Thain’s eighth since taking the helm of the New York Stock Exchange in January 2004. The purchase of Euronext in April created the first trans-Atlantic equity market and expanded the Big Board’s reach into trading futures contracts in Europe for commodities and interest rates through its London- based Liffe market. Richard Adamonis, a spokesman for NYSE Euronext, declined to comment on the reports.
Discussions with Chai
“Our discussion with Chai indicated that NYSE Euronext will not allow Euronext integration to distract the exchange from pursuing deals in a rapidly consolidating industry,” wrote Pinschmidt, who has a “neutral” rating on shares of the company. “That said, we have no reason to believe any deal is imminent, and NYSE Euronext could still decide to plow forward with the difficult task of seeking to leverage the Liffe platform organically in the US marketplace.”
Rivals have also sought to expand through acquisitions. Deutsche Boerse, which owns the largest European futures market, last month agreed to purchase the International Securities Exchange Holdings Inc. for $2.8 billion. The Chicago Mercantile Exchange and the Intercontinental Exchange have both made offers to buy the Chicago Board of Trade for at least $9.6 billion, seeking to gain control of the second-largest US futures market.
Hunter to Hunted
In his report, Pinschmidt quoted Chai as saying that the Intercontinental Exchange put itself “in play” by making its offer for the Board of Trade.
NYSE Euronext could also benefit from cost cuts by purchasing an exchange that operates in New York, such as Intercontinental Exchange or Nymex Holdings Inc., said JPMorgan’s Worthington.
Intercontinental spokeswoman Kelly Loeffler and Nymex spokeswoman Anu Ahluwalia declined to comment. Both Worthington and Pinschmidt were unavailable to comment.
NYSE Euronext shares rose $1.97, or by 2.5%, to $81.52 in NYSE composite trading. The stock has declined by 16% this year, giving the company a market value of $21.5 billion.
Shares of Nymex, owner of the world’s largest energy market, rose $2.43 to $120.79. Intercontinental Exchange, which earlier this year acquired the New York Board of Trade, gained 49 cents to $137.81. Both exchanges have a market value of more than $9.6 billion.
JPMorgan was among banks that helped finance a 2.5-billion- euro loan to acquire Euronext. The New York-based firm also served as an investment banker for the exchange in the past 12 months. Merrill Lynch was the financial adviser to the exchange in its purchase earlier this year of a 5% stake in the NYSE.