Published December 20, 2012
LONDON – Plans by IntercontinentalExchange to float Euronext if its bid for NYSE Euronext succeeds effectively puts a for sale sign up over the European stock markets business.
The two exchanges plan to "explore" an initial public offering (IPO) of Euronext if ICE's $8 billion bid for NYSE Euronext goes ahead in the second half of 2013 as planned.
ICE wants NYSE Euronext's European futures unit Liffe rather than Euronext, which is made up of the French, Dutch, Belgian and Portuguese national stock markets.
These have in recent years been squeezed by increasing competition from new entrants such as Bats Chi-X Europe and lower trading levels as a result of the financial crisis.
Suitors for Euronext could include Deutsche Boerse, which tried and failed to buy NYSE Euronext earlier this year, Nasdaq OMX, which had its bid for NYSE blocked by U.S. authorities last year, and London Stock Exchange (LSE), Europe's largest equities group by value of trading.
"Deutsche Boerse are the big losers unless they come back and strike a deal with Euronext," one source familiar with the ICE NYSE Euronext deal said on Thursday.
"Nasdaq could also try to do something to rebound. An obvious move for them would be to try to team up with an Asian exchange."
The German exchange and Nasdaq should both have the cash to take out Euronext if they wanted to, having in the last year raised several billion dollars in their attempts to buy NYSE Euronext.
Large stock exchanges generate cost savings by moving more assets on to a single platform, so Deutsche Boerse or Nasdaq would likely look to move Euronext shares on to their systems and drive down the total cost of running these services.
Analysts also linked the LSE to Euronext, although one said the British exchange is currently looking to tap derivatives and would be unlikely to consider an equities deal.
Any takeover by an incumbent European stock market is unlikely to face opposition from anti-trust authorities because the European share market is very fragmented and, therefore, highly competitive.
Spokespeople for Deutsche Boerse, the LSE and Nasdaq OMX declined to comment.
The source familiar with the situation said the four national exchanges that make up Euronext are likely to welcome the plan that they separate from NYSE because that would mean they regain their independence, at least in the short term.
"European stock markets quite like the idea since it would restore their autonomy," said the source.
"NYSE's CEO and his NYSE counterpart presented the project no later than yesterday at a regulatory summit in London. French, Dutch, Portuguese regulators welcomed the idea."
NYSE bought Euronext for 8 billion euros ($10.2 billion) in 2007 but this was for the European stock markets and the more lucrative Liffe business and that was pre-financial crisis so any IPO in 2013 or 2014 will not match those valuations.
"While the details aren't clear, the legacy Euronext markets could be worth somewhere between 1-2 billion euros," said Richard Perrott, an analyst at Berenberg Bank.
Stock markets have an average net margin of about 40 percent and NYSE generated $540 million of revenue from Euronext last year. When applying a sector average valuation multiple of eight times earnings, that takes the value of Euronext to more than $1.7 billion.
The timing of any listing is also unclear at this relatively early stage.
"I don't know how well set up it is to be an independent entity but normally the lead time (for an IPO) is 3-5 months," said one equity capital markets banker.
Given ICE said on Thursday it will look to spin-off Euronext after the deal completes and this is not planned until the second half of next year any IPO is unlikely to take place before 2014.
(Additional reporting by Kylie MacLellan; editing by Philippa Fletcher)