The upstart IntercontinentalExchange (ICE) has entered into an agreement to acquire the New York Board of Trade (NYBOT), in a $1 billion deal that will create a new global powerhouse in the commodities market.
NYBOT seat holders will receive 10.3 million shares of ICE common stock and $400 million in cash, or approximately $1 million per seat. That represents nearly a 20 percent premium from the $850,000 that seats fetched last week, when rumors of a possible merger first hit the market. Seat prices at the NYBOT have almost doubled since January of this year.
Assuming the deal receives FTC clearance, it will significantly reshape the exchange marketplace, combining the ICE's market-leading electronic trading platform and strong international presence with the NYBOT's dominant position in many U.S. commodity markets. The merger will significantly diversify ICE's product platform, bringing it out of the energy patch and into agricultural commodities (cocoa, coffee, cotton, orange juice and sugar), currency products (USDX futures) and even equity contracts (Russell index futures, among others).
"The combination of two global and rapidly growing commodity marketplaces, together with a highly respected clearinghouse, allows us to expand ICE's offerings for market participants, as well as create long-term shareholder value," said ICE's Chairman and CEO Jeffrey C. Sprecher.
ICE was only formed in 2000, but it has quickly become one of the dominant (if not the dominant) player in the massive market for energy derivatives. It's fast, all-electronic trading platform dominates the energy market in Europe, and after moving into the U.S. earlier this year, has already taken more than half the market from the New York Mercantile Exchange (NYMEX).
As part of the deal, the NYBOT will be able to use the ICE's robust electronic trading platform while the deal is finalized and reviewed by regulators. The deal is also subject to a vote by NYBOT seat holders, although that is likely to be a formality.
One issue for seat-holders will be the future of floor-based trading, but the ICE said that the combined companies will operate a hybrid exchange, similar to the New York Stock Exchange; the hybrid model, with electronic and floor-based trading existing side-by-side, is emerging as a "best practice" in the industry.
ICE expects the deal to created $50 million in synergies, including major savings from moving ICE's clearing process onto the NYBOT's internal clearing platform. In addition, the two companies will look to expand rapidly into new products, including new commodities, currencies and equity index markets. Armed with the ICE's smooth electronic trading platform, they'll likely be a serious player.