* Takeover values NYSE Euronext at $8.2 bln
* ICE considering an IPO of Euronext
* Deal marks end of era for New York Stock Exchange
* Acquisition will help ICE compete against CME
* ICE to pay $300 million in annual dividends
By John McCrank and Sophie Sassard
Dec 20 In October, Jeff Sprecher, chief
executive of upstart IntercontinentalExchange,
approached NYSE Euronext CEO Duncan Niederauer with a
modest proposal to team up on clearing trades in London.
As the men continued talking, Sprecher grew bolder, instead
suggesting that ICE buy NYSE in what became an $8.2 billion deal
announced on Thursday.
The deal will link up two powerful derivatives exchange and
clearing house operators, but threatens to further reduce the
clout of the New York Stock Exchange. While the New York Stock
Exchange has stood for 200 years as an iconic symbol of
U.S. capitalism, it is almost an afterthought in this deal.
For ICE, the crown jewel of NYSE Euronext is Liffe, Europe's
second-largest derivatives market, analysts said. Niederauer had
long felt that NYSE's shareholders did not appreciate the true
value of the London-based futures and options exchange, and had
talked to bankers about how to improve NYSE's stock price, a
person familiar with the matter said.
Liffe will help ICE compete against U.S.-based CME Group,
owner of the Chicago Board of Trade. Derivatives trading
remains highly profitable for the exchanges, and new rules next
year will dramatically expand the demand for clearing
The stock market businesses are less valuable to ICE. The
company said it will try to spin off the Euronext European stock
market businesses in a public offering, generating speculation
it may also have little interest in the NYSE trading floor.
Profits from stock trading have been significantly eroded by new
technology and the rise of other places for investors to trade,
including venues known as "dark pools."
ICE's Sprecher will be CEO of the combined organization, and
the NYSE Euronext CEO will be president, a ceremonial title at
many U.S. companies. In an interview, Niederauer said he would
remain at least through 2014 as an "important senior member" of
Sprecher's management team.
Niederauer will also be CEO of the NYSE Group. The combined
company will be based in New York and Atlanta, where ICE is
Sprecher and Niederauerhave been friends for years, but the
two stopped talking for about six weeks in 2011 when ICE teamed
up with Nasdaq OMX Group to make an unsolicited bid for
NYSE Euronext. That bid came even as the New York Stock Exchange
operator was trying to sell itself to Deutsche Bourse
. Regulatory concerns killed both deals.
Without the Nasdaq or Deutsche Bourse's huge equity
operations, ICE alone has far less overlapping business and
should face easy approvals, antitrust lawyers said.
The deal values each NYSE Euronext share at $33.12, a 28
percent premium to the stock's closing price on Wednesday.
NYSE Euronext stock rose 34 percent to end at $32.25 on
Thursday. ICE's shares fell as much as 4 percent but finished
regular trading at $127.60, up 1.4 percent on the day.
ICE said it would pay annual dividends of $300 million to
the companies' shareholders once the deal closes, about what
NYSE pays its shareholders now.
IN THE DOLDRUMS
The deal reflected Niederauer's inability to get his
company's share price out of the doldrums. 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.
Further consolidation of exchanges was "inevitable" and ICE
was a "great partner," Niederauer said on a call with analysts,
so continuing on alone did not make sense.
"We can sit here and keep slugging away and keep working
hard, but the bottom line is we had not delivered, in my mind,
sufficient returns to shareholders," Niederauer said. NYSE
bought Euronext, including Liffe, for 8 billion euros in 2007.
Sprecher incorporated the stalled stock price - and the
unrecognized value of Liffe - as part of his pitch.
"The reason that we were prepared to pay $33 a share for a
company that was trading at $24 a share was that there is a $33
company in here and the market was just not either seeing it or
willing to give credit for," he said in an interview. "We said,
'let's just force the credit.'"
The two sides negotiated in secret for about eight to 10
weeks, the two CEOs said. In options markets, there were some
signs that word might have leaked out, with a sudden upswing in
the demand for call options on NYSE, which perform well when a
company's share price rises.
ICE started out as an online marketplace for energy trading
before Sprecher initiated 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
ICE's current main operations are in energy futures trading
and, it has steered clear of stocks and stock-options trading,
key businesses for NYSE Euronext.
"This deal is probably not going to generate a lot of
concern from an antitrust perspective," said Warren Rosborough,
a veteran of the U.S. Justice Department's antitrust division
who is now with the law firm McDermott Will & Emery.
In clearing, ICE has a popular U.S. over-the-counter and
listed business, while Liffe's operation is strong in futures
and based in Europe.
Concerns over a small amount of competing derivatives
business could be addressed with straightforward divestitures,
Rosborough said. "It's an open question about whether it will
generate questions," he added. "If there is a fix, it will be
relatively easy fix."
Sprecher said the deal had been "well received" by
regulators after he and Niederauer completed a "whirlwind tour"
in the United States and Europe ahead of Thursday's
announcement. Officials at the European Commission, the
Department of Justice and Securities and Exchange Commission
declined to comment.
Last year, Justice Department objections blocked ICE and
Nasdaq OMX's $11 billion bid on concerns the tie-up would
dominate U.S. stock listings. The rival $9.3 billion bid by
Deutsche Boerse fell afoul of European regulators.
A combined ICE-NYSE Euronext 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 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 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.
Long-time Wall Street traders saw the potential takeover of
the venerable stock exchange by a 12-year-old derivatives
upstart as fraught with symbolism.
"It's the end of an era," said a director on the board of a
rival exchange who did not have clearance to speak to the press
and asked not to be named. "I think ultimately the floor will be
closed, because Jeff (Sprecher) has shut every floor he's ever
had," the person said.
With the deal still a long way from completed, Sprecher and
Niederauer said they planned to keep the high-profile NYSE
trading floor running. "The floor has value and in particular,
it has a lot of brand value," Niederauer said. "So we are
committed. Jeff is committed."
The exchange was prepared to shut down the floor temporarily
during superstorm Sandy and trade completely electronically,
Wall Street executives said.
Shareholders will have the option of accepting $33.12 in
cash per NYSE Euronext share or 0.2581 ICE share or a mix of
$11.27 in cash and 0.1703 ICE share, subject to a maximum cash
consideration of $2.7 billion.
Morgan Stanley was the lead financial adviser to ICE,
with assistance from BMO Capital Markets Corp, Broadhaven
Capital Partners, JPMorgan Chase & Co, Lazard Group LLC
, Societe Generale Corporate & Investment Banking, and
Wells Fargo Securities LLC. ICE legal advisers are
Sullivan & Cromwell LLP and Shearman & Sterling LLP.
The main financial advisers to NYSE Euronext are Perella
Weinberg Partners and BNP Paribas. Further financial advice to
NYSE Euronext was provided by Blackstone Advisory Partners,
Citigroup, Goldman Sachs & Co. and Moelis & Co.
Legal advisers to NYSE Euronext are Wachtell, Lipton, Rosen &
Katz, Slaughter & May, and Stibbe NV.