Adam Shell, USA TODAY
The owner of the venerable New York Stock Exchange, best known for its stock-related trading business and famous trading floor, has been acquired by the InterContintenalExchange, or ICE, an upstart exchange with a huge commodities and derivatives trading business.
The deal is valued at $8.2 billion. The combination creates a more diversified financial exchange company, which includes trading of agricultural and energy commodities, credit derivatives, stocks and equity derivatives, foreign exchange and interest rates.
The announcement came Thursday about an hour before the start of trading in New York.
In a statement announcing the deal, ICE said it is committed to preserving the NYSE Euronext brand and the newly combined company will maintain dual headquarters in Atlanta and New York. New York headquarters will be located in the Wall Street building that is home to the iconic trading floor.
ICE will acquire NYSE Euronext for $33.12 per share in cash and stock, a 37.7% premium to Wednesday's closing price. NYSE shareholders can elect to be paid in all cash, all stock or a combination of $11.27 in cash plus stock in ICE.
"This transaction leverages the strength of our iconic brand and the value we have created in our global equity and derivatives franchises - positioning the business for solid long-term growth and development," said Duncan Niederauer, CEO of NYSE Euronext. "We are bringing together two highly complementary businesses, creating an end-to-end multi-asset portfolio that will be strongly positioned to serve a global client base and capture current and future growth opportunities."
The main attraction for ICE is not NYSE Euronext's stock trading business -- which has been in decline since the 2009 financial crisis and the industry shift to electronic stock trading. ICE is targeting NYSE's LIFFE derivative exchange, which is based in London and will enable ICE to gain access to Europe's sought-after derivatives business, RBC Europe analyst Peter Lenardos said in a research note.
The combination of ICE and NYSE Euronext will also allow the new exchange giant to better compete with CME Group, a U.S. exchange with a huge derivatives business that owns the Chicago Mercantile Exchange and Chicago Board of Trade.
The deal will also allow the combined entity to reduce its costs in an industry that has been hurt by reduced trading volumes and increased regulatory obstacles.
"Our transaction ... offers a range of growth opportunities, while enhancing competition in U.S. and European markets and broadening our ability to address new markets and offer innovative products and services on a global platform," said ICE Chairman and CEO Jeffrey Sprecher.
It marks the latest move towards industry consolidation, driven largely by reduced trading volumes, intense competition and overcapacity.
Lenardos says the merger sets the stage for the potential break-up of NYSE Euronext, which had a pre-deal value of $5.8 billion. "We believe that ICE will have little use for NYSE Euronext's equities business," which includes stock exchanges in Paris, Amsterdam, London and Brussels, Lenardos said.
The deal values NYSE Euronext at 13.2 times next year's earnings estimates, says Lenardos. "We believe this price is very generous to NYX shareholders, and that $10 billion (including debt) is a steep price for ICE to gain meaningful access to European derivatives." Nonetheless, he expects initial reaction to the deal will be positive.
Since ICE and NYSE Euronext businesses have no significant business overlap, analysts do not foresee anti-trust risk to this deal. The latest deal could also jump-start "mega-mergers" in an industry where the top players are "keen to consolidate," Lenardos says.
More than a year ago, ICE and Nasdaq OMX Group teamed up for a hostile takeover of NYSE Euronext, but the deal was blocked by the U.S. government on anti-trust concerns. The Justice Department feared the Nasdaq and NYSE would have a stock trading monopoly in the U.S.
Similarly, European regulators balked at a proposed alliance between NYSE Euronext and Deutsche Bourse.
- The cash portion of the transaction will be funded by a combination of cash on hand and existing ICE credit facilities.
- The transaction is expected to close in the second half 2013, subject to regulatory approvals in Europe and the U.S. and approval by shareholders of both companies.
As a result of the transaction, ICE clearing will be more capital efficient and provide operational efficiencies for clearing members, the statement said.
ICE is also committed to maintaining the position of NYSE Liffe in London as a leading international market operator for derivatives products, including its benchmark interest rate complex.
It intends to explore an initial public offering of Euronext as a Continental European-based entity following the closing of the acquisition if market conditions and European policy makers support the offering.
Jeffrey Sprecher will continue as Chairman and CEO of the combined company and Scott Hill as CFO.
Duncan Niederauer will be President of the combined company and CEO of NYSE Group. Four members of the NYSE Euronext Board of Directors will be added to the ICE Board of Directors which will be expanded to 15 members.