NEW YORK/FRANKFURT Deutsche Boerse (DB1Gn.DE) is selling U.S. options exchange operator International Securities Exchange for $1.1 billion to Nasdaq (NDAQ.O), potentially strengthening its hand in a proposed merger with London Stock Exchange (LSE)(LSE.L).
Deutsche Boerse said late on Wednesday that it was set to book a disposal gain in the high triple-digit millions of euros from selling ISE, having written it down continuously since acquiring it for $2.8 billion in 2007.
The German exchange's shareholders could benefit through an extra dividend or share buyback, analysts at brokerage Equinet said, adding that Deutsche Boerse would have additional cash to increase its LSE offer in the event of a takeover battle for the British company.
Intercontinental Exchange (ICE.N) said this month that it might make a rival offer for LSE.
People familiar with the merger talks between Deutsche Boerse and its European peer cautioned that money is not the only consideration in that deal.
While an enhanced offer may help to win over shareholders, such a step may make it harder to secure political backing in London because it would change the character of the deal from a merger of equals to a takeover by Deutsche Boerse, they said.
Deutsche Boerse Chief Executive Carsten Kengeter has said he has alternatives if the LSE merger does not go through, adding that it is unclear whether counter-bidders really want to buy LSE or want to weaken competitors by forcing them to pay more.
STRETCHING ITS LEAD
ISE operates three electronic options exchanges, which together account for more than 15 percent of U.S. volumes, while Nasdaq operates another three. Combined, Nasdaq would command more than 40 percent of the market, extending its lead as the No.1 U.S. options exchange operator.
"The ability to further that lead gives us advantages as to how we could serve our customers because you have a different volume-versus-scale arrangement," Nasdaq Chief Executive Bob Greifeld said in an interview.
The deal would also free up capital for Deutsche Boerse, which has said it plans to merge with LSE to create a European trading powerhouse that could better compete with U.S. rivals.
Nasdaq, which plans to move ISE's trading platforms onto Nasdaq technology, said it could strip out $40 million of costs from the two businesses through the transaction.
The deal would also give Nasdaq an additional 20 percent of the Options Clearing Corporation, taking its stake in the world's largest equity derivatives clearing business to 40 percent.
Greifeld said he had been looking to buy ISE for years and that talks with Deutsche Boerse's Kengeter picked up over the past three months.
The deal does not include ISE's stake in No.2 U.S. stock exchange operator BATS Global Markets or blockchain start-up Digital Asset Holdings, which will continue to be owned by Deutsche Boerse, the German company said.
Nasdaq, which has boosted its profit and share price through a number of acquisitions in recent years, said the ISE transaction is expected to be finalised in the second half of the year, pending regulatory approval, and is likely to increase earnings within 12 months of closing.
(Additional reporting by Arno Schuetze and Andreas Kröner in Frankfurt, Sudarshan Varadhan in Bengaluru; Editing by Lisa Shumaker, Richard Chang and David Goodman)