NYSE Euronext (NYSE:NYX) and IntercontinentalExchange, Inc. (NYSE:ICE) have announced a definitive agreement for ICE to acquire NYSE Euronext in a stock-and-cash transaction. The deal is valued at approximately $8.2 billion based on the closing price of ICE on Wednesday. NYSE Euronext shareholders have the option to be paid in ICE shares, cash or a fixed combination of the two. NYSE Euronext shareholders are expected to own approximately 36% of ICE shares after the deal is completed (expected to occur in the second half 2013, subject to regulatory approvals in Europe and the U.S., and approval by shareholders of both companies).
Who is this relatively unknown to the general public IntercontinentalExchange?
IntercontinentalExchange, known as ICE, is a relatively young (founded in 2000) operator of global futures exchanges, over-the-counter (OTC) markets, derivatives clearing houses and post-trade services.
Its founding shareholders included some of the world’s largest energy traders, and energy trading remains a key part of ICE’s business. In fact, the company on its website claims that it is “Home to more than half of the world’s crude oil and refined petroleum product futures volume.” But ICE also facilitates trading and clearing in environmental and agricultural commodities, credit default swaps, equity indexes and currency contracts.
ICE operates five regulated clearing houses across North America and Europe, and serves customers in more than 70 countries. It became a publicly traded company in late 2005, and since the IPO its stock price is up over 270%. Over this same period, the Dow Jones Industrial Average and the S&P 500 managed gains of only around 20% and the NASDAQ Composite Index has fallen over 20%.
ICE has already made one attempt, teamed with the NASDAQ OMX Group, to buy NYSE Euronext. Because of NASDAQ’s involvement, regulators would not approve of the deal because of anti-trust concerns. The current agreement, without NASSDAQ, is generally expected to encounter little regulatory resistance worldwide as the businesses of ICE and NYSE Euronext have little overlap.
This agreement by NYSE Euronext to sell itself is seen as a sign of changing times for stock markets. They are getting squeezed and need to find new ways to generate profits.
As a result of this sale/acquisition, the companies expect annual run-rate cost savings of $450 million by the second year after closing. Earnings growth of over 15% is expected in the first year after closing. In addition, they believe ICE clearing will be more capital-efficient and provide operational efficiencies for clearing members.
As explained in these quotations from the announcement:
“Our transaction is responsive to the evolution of market infrastructure today and offers a range of growth opportunities, while enhancing competition in US 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 C. Sprecher. “We believe the combined company will be better positioned to compete and serve customers across a broad range of asset classes by uniting our global brands, expertise and infrastructure. With a track record of growth and returns, clearing and M&A integration, we are well positioned to transform our combined companies into a premier global exchange operator that remains a leader in market evolution.”