February 5, 2020 / 12:06 AM / 20 days ago

Breakingviews - ICE-eBay deal would signal return of merger mania

The German headquarters of online marketplace eBay is pictured at Europarc Dreilinden business park south of Berlin in Kleinmachnow, Germany, August 6, 2019. REUTERS/Fabrizio Bensch

NEW YORK (Reuters Breakingviews) - A possible bid by Intercontinental Exchange for eBay would be a sign that merger mania is back. It’s hard to imagine why the $52 billion owner of the New York Stock Exchange, other bourses, and clearinghouses might want to buy the $30 billion online-commerce firm, as the Wall Street Journal reported on Tuesday. That’s probably because there are few benefits to the combination. But investors’ reaction to the idea may freeze any ambitions ICE Chief Executive Jeffrey Sprecher has for buying the auction site.

The putative bidder has been a prolific acquirer, buying exchanges and clearinghouses in more than a dozen deals, including the 2012 purchase of NYSE Euronext. Meanwhile, eBay has been under pressure from activist investors Elliott Management and Starboard Value. That resulted in boss Devin Wenig departing last September, as well as asset sales such as ticketing unit StubHub for $4 billion. Other changes are still under consideration. Selling the whole caboodle would be a nice resolution for everyone on that side of the table, assuming there was a decent premium.

It’s hard to see the logic from ICE’s perspective, though. Sure, Sprecher’s company trades at 24 times estimated earnings over the next 12 months, according to Refinitiv figures. EBay is valued at around half that. If ICE can go in and chop out costs, there’s a chance shareholders might slap ICE’s multiple on the resulting earnings.

Trouble is, the lack of any obvious strategic benefit sends one of two worrying messages: ICE executives either look desperate to do any deal, or have convinced themselves that they have found a long-term strategic rationale for the deal that has eluded all others. In other words, it’s just the kind of combination to be expected during frothy markets.

Judging by their immediate reaction, shareholders aren’t open to such toppy thinking yet: ICE stock fell more than 7% on the Wall Street Journal report, wiping out more than $4 billion of value. The chilly reception may cool merger fever before it gets going.


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