CHICAGO U.S. exchanges may not rush to strike deals to compete with the combined Deutsche Boerse AG (DB1Gn.DE) and NYSE Euronext NYX.N, even as the sector is almost certain to consolidate further over the long term.
In particular, analysts cast doubt on a report that CME Group Inc (CME.O) would try to buy NYSE Euronext -- operator of the New York Stock Exchange -- away from its German suitor, which this week offered to pay $10.2 billion for the icon of U.S. capitalism.
Chicago-based CME was a major force during the last wave of exchange consolidation, buying the Chicago Board of Trade in 2007 and the New York Mercantile Exchange in 2008 to cement its dominance in U.S. futures. Deutsche Boerse's agreement on Wednesday to buy NYSE Euronext sparked speculation CME would jump into the fray again.
"The rationale for consolidation, to save costs and eliminate redundant systems - that's going to exist today, tomorrow, yesterday and next year," said Edward Ditmire, a New York-based analyst for Macquarie Securities.
But with CME executives having said explicitly that they have little current interest in growing by acquisition, he said, "it doesn't seem to me that they ... are looking to do a deal."
CME said in a statement on Tuesday that it is "committed" to organic growth. Later that day CME Executive Chairman Terrence Duffy told CNBC that NYSE Euronext's European futures exchange is "attractive," but analysts say Duffy is only looking.
PAST THE HONEYMOON
"We do not believe the company is willing to take on other assets in more competitive businesses (cash equities, options) for the sake of expanding the reach of its futures business," Alex Kramm, a New York-based analyst for UBS, told clients in a note Wednesday. "Ultimately, we do not believe CME is likely to pursue this course of action."
More likely than a flurry of mergers in coming months is continued consolidation over time, with bigger deals possible next year, several analysts said.
Energy bourse operator IntercontinentalExchange Inc (ICE.N), for instance, could be a target for a combined NYSE-Deutsche Boerse, which despite its market-dominating size would have little presence in commodities trading, said Keefe Bruyette and Wood analyst Niamh Alexander.
London Stock Exchange's (LSE.L) bid to take over Canada's TMX Group (X.TO), announced last week, could create an exchange giant with the pocketbook and the appetite to acquire NASDAQ OMX (NDAQ.O) Group, Alexander said.
And Singapore Exchange's (SGXL.SI) $7.9 billion bid for rival ASX (ASX.AX), announced last October, could create a behemoth interested in either ICE or Nasdaq, she said.
"We believe the newly combined entities -- once past their regulatory approval hurdles and the 'honeymoon' stage of the mergers where the low hanging fruit of synergies have been grasped -- could revisit the U.S. as bigger, more lucrative acquirers though they could then have other options in the higher growth Asian and Latin American markets that are currently not open to combinations," she told investors in a note on Wednesday.
Several analysts also said CBOE Holdings Inc (CBOE.O) would also be an attractive acquisition target.
Nasdaq is the most threatened by the Deutsche Boerse-NYSE Euronext tie-up, because the combined company would have the biggest market share in U.S. options, an increased hold on U.S. equities trading and a more dominant European securities business.
That makes it "strategically and competitively more problematic to Nasdaq OMX than to CME," Macquarie's Ditmire said. Even so, he said, it's unclear that a quick deal is necessary. "I'm not sure there is a huge rush on," he said.
(Reporting by Ann Saphir; Editing by Tim Dobbyn, Gary Hill)