An NYSE-ICE consolidation is again in play, as exchanges grapple with falling margins.
The New York Stock Exchange, one of the most storied institutions in global capitalism, entered into an agreement to be acquired by the Atlanta-based Intercontinental Exchange in a cash and stock transaction that values the NYSE at $8.2 billion, the companies said today in a press release.
While the potential end of the independence of the Big Board is certainly newsworthy, it’s crucial to keep in mind that such a transaction will have nary an effect on the world of securities trading that increasingly is involving exchange-traded funds.
The transaction currently values NYSE Euronext at $33 a share—a 37.7 premium over NYSE Euronext’s (NYSE: NYX) closing share price on Dec. 19, 2012. The transaction, which is currency expected to close in the second half of 2013, will result in NYSE Euronext shareholders with an ownership stake in the new company of about 36 percent.
Consolidation is the order of the day in the exchange business, where high-speed algorithmic trading has collapsed profit margins in the past generation and forced companies like ICE and NYSE to bridge the gap by cutting costs and creating infrastructure to boost trading volumes as much as possible.
The companies estimated about $450 million in “run rate expense synergies,” with the bulk of those coming in the second full year following the closing. They also estimated earnings “accretion” of more than 15 percent in the first year after closing.
It’s not the first time ICE has made a bid for NYSE. It tried unsuccessfully to acquire a piece of NYSE Euronext in a joint bid with the Nasdaq exchange in the spring of 2011. But the initiative fell apart a bit more than a month later after U.S. regulators, citing antitrust concerns, signaled that they would reject the proposed transaction.
The companies noted that the 2013 second half closing is subject to approvals by regulators in Europe and the United States and by shareholders.
For ICE, which is focused on futures trading, the acquisition would mark an expansion into an entirely new realm of equities and equity options trading.
“We are bringing together two highly complementary businesses, creating an end-to-end multi-asset portfolio that will be strongly positioned to serve a global client base and capture current and future growth opportunities,” Jan-Michiel Hessels, NYSE Euronext’s chairman, said in the press release.
The acquisition combines two leading exchange groups to create a premier global exchange operator diversified across markets including agricultural and energy commodities, credit derivatives, equities and equity derivatives, foreign exchange and interest rates.
Looking ahead, ICE intends to explore an initial public offering of Euronext as a continental Europe-based entity following the closing of the acquisition—as long as market conditions and European policymakers support the offering.
Also, ICE is also committed to maintaining the position of NYSE Liffe in London as a leading international market operator for derivatives products, including its benchmark interest rate complex.
The overall mix of the $8.2 billion of the cost of the merger is about 67 percent shares and 33 percent cash.