IntercontinentalExchange agreed an $8 billion deal to buy New York Stock Exchange owner NYSE Euronext on Thursday, propelling the commodities player into European financial futures and L5E8NK7YEhelping it to take on arch rival CME Group.
Atlanta-based ICE will look at selling Euronext, NYSE's European stock market businesses, in an initial public offering after the deal closes in the second half of next year.
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The deal gives a 12-year old start-up ownership of the New York Stock Exchange, an iconic symbol of U.S. capitalism for over 200 years which has been hit by new technology and the rise of private trading venues run by Wall Street banks and brokers.
"Our transaction is responsive to the evolution of market infrastructure today and offers a range of growth opportunities," ICE Chairman and CEO Jeff Sprecher, who will be chairman and ceo of the combined group, said in a statement.
Under the terms of the deal, ICE will pay $33.12 per NYSE share, a 28 percent premium to their closing price on Wednesday. The $8.2 billion deal will be paid one third in cash with the remainder in ICE shares.
NYSE Euronext stock rose nearly 32 percent after the deal was announced, while ICE's shares fell four percent before clawing back some of the losses to trade down 1.7 percent at 10:10 a.m ET.
"The Board of NYSE Euronext carefully considered a range of strategic alternatives and concluded that ICE is the ideal partner for NYSE Euronext in an evolving market landscape," said Jan-Michiel Hessels, chairman of NYSE Euronext.
Analysts said the deal will give ICE a strategic boost with control of Liffe, Europe's second-largest derivatives market, helping it compete against U.S.-based CME Group Inc, owner of the Chicago Board of Trade.
"ICE is after Liffe, that is the crown jewel of NYSE Euronext," said Peter Lenardos, analyst at RBC Capital Markets. NYSE bought Euronext, including Liffe, for 8 billion euros in 2007.
"Strategically it makes sense for ICE to enter the European derivatives space in a meaningful way."
Sprecher said the deal had been "well received" by regulators after he and NYSE CEO Duncan Niederaur completed a "whirlwind tour" in the United States and Europe ahead of Thursday's announcement.
SWEET FOR SUGAR
ICE, founded in 2000, has its roots in electronic commodity trading and a tie-up with Liffe will boost trade in soft commodities such as sugar, buoying its profits.
"I would imagine that, having the softs contracts under one roof, would provide for easier arbitrage, financing and development of trading opportunities behind the contracts, via swaps and options," said Jonathan Kingsman, a sugar trade veteran who heads agriculture at information provider Platts.
"If you have clearing membership of ICE, you could trade London contracts under the same membership."
An ICE-NYSE Euronext tie-up would leap-frog Deutsche Boerse to become the world's third-largest exchange group with a combined market value of $15.2 billion. CME Group, ICE's largest U.S.-based rival, has a market value of $17.5 billion, Thomson Reuters data shows.
Hong Kong Exchanges and Clearing is the world's largest exchange group with a market cap of $19.5 billion.
ICE's main operations are in energy futures trading and unlike NYSE Euronext, it has steered clear of stocks and stock-options trading, so there is not much business overlap between the two groups, making it more likely competition authorities would approve a tie-up, analysts said.
Last year, the U.S. Justice Department blocked a $11 billion joint hostile bid by ICE and Nasdaq OMX Group for NYSE Euronext on concerns the tie-up would dominate U.S. stock listings.
A rival $9.3 billion bid by German exchange operator Deutsche Boerse also fell foul of regulators.
"I doubt the competition authorities will have a problem with it, there's only a modest overlap between the businesses," said Richard Perrott, an analyst at Berenberg Bank.
"The rationale for the deal will be the same as that with Deutsche Boerse - migrate the clearing of Liffe derivatives to ICE's services in London and scale up to attract OTC (Over The Counter) derivatives clearing."
ICE said it expected to achieve $450 million in cost savings from the takeover. In the first year after the deal closes, additional earnings of 15 percent are expected.
Before the latest ICE offer emerged, NYSE Euronext's shares had fallen by nearly a third since ICE and Nasdaq launched their thwarted joint bid.
ICE, which started out as an online marketplace for energy trading, is the product of a string of acquisitions from the London-based International Petroleum Exchange in 2001, to the New York Board of Trade and, most recently, a handful of smaller deals, including a climate exchange and a stake in a Brazilian clearing house.
NYSE Euronext shareholders will have the option of either accepting $33.12 in cash per share or 0.2581 ICE shares or a mix of $11.27 in cash plus 0.1703 ICE shares, subject to a maximum cash consideration of $2.7 billion.
ICE said it would pay an annual dividend of $300 million once the deal closes.
(This story corrects next to last paragraph to say that NYSE Euronext shareholders can take cash or ICE shares or a mix of cash and shares)
(Additional reporting by Luke Jeffs and David Brough in London; writing by Carmel Crimmins; editing by Philippa Fletcher)