Intercontinental Exchange said it plans to acquire NYSE Euronext in a stock and cash deal worth $8.2 billion. Both companies’ boards approved the plan to merge early Thursday.
Intercontinental Exchange, typically called ICE, operates regulated markets that trade in agricultural and energy commodities, credit derivatives, equities and equity derivatives, foreign exchange and interest rates. The firm also operates a wide range of clearing houses and has launched houses in the United States and Europe that clear credit-default swap transactions.
ICE will own and control the combined operation. Its chief executive, Jeffrey C. Sprecher, and chief financial officer, Scott A. Hill, will retain those positions in the new firm. NYSE Euronext chief executive Duncan L. Niederauer would become president of the overall combined company and be chief executive of the newly created NYSE Group inside ICE.
Sprecher said ICE is contemplating spinning off the European exchanges in Paris, Lisbon, Brussels and Amsterdam that constitute Euronext in an initial public offering of stock, to European investors.
NYSE Liffe, a futures and options exchange that accounts for about 40% of NYSE Euronext’s operating income, will start to use ICE Clear Europe for clearing services. That will happen regardless of whether the merger goes through, Sprecher said.
The “transformative transaction,’’ as Sprecher called it, represents an acquisition of a much larger and older capital markets company by a young, much more profitable operator.
The New York Stock Exchange traces its roots back to the meeting of twenty-four stockbrokers outside 68 Wall Street under a buttonwood tree to in May 1792. The first constitution of the New York Stock & Exchange Board was adopted in 1817.
IntercontinentalExchange was established in May 2000 by large energy dealers trying to establish a multi-dealer, around-the-clock exchange over the Internet.
Twelve years later, NYSE Euronext, formed in 2007 with the acquisition of Euronext by the NYSE, is still the larger of the two companies. Its revenues through September for this year are $2.5 billion. ICE’s revenues for the first nine months of 2012 are just over $1.0 billion.
But ICE “cleared” $429 million of that to its bottom line, or about 40%. NYSE Euronext “cleared” $506 million, or about 20%.
That kind of disparity left ICE with a market worth of $9.3 billion at the end of trading Wednesday. NYSE Euronext was, in investors’ minds, worth $5.8 billion.
If the deal is completed by the end of 2013, as intended, the combined company will operate 14 regulated exchanges and five clearing houses.
The firm would expand into interest-rate based products, Sprecher said, but the purchase price is based on cost savings that the two companies can wring out of their operations. These are the $450 million of "significant synergies and significant cash flows" that the two firms believe they can achieve by the end of 2015, operating together.
These include $150 million of savings already identified by NYSE Euronext in its Project 14 savings program, as well as $150 million in clearing, technology and other operational savings; and, $150 million in overlapping corporate spending.
The stock and cash work out to $33.12 a share, or 28 percent above the average price of a NYSE Euronext share this year, according to ICE.
Last year, Niederauer tried to merge NYSE Euronext with Germany’s Deutsche Boerse Group. But European regulators blocked the move, based on the dominance the two firms would achieve of the derivatives marketplace on that continent.
ICE, in combination with Nasdaq OMX Group, tried to block that merger as well, staging a hostile takeover bid for NYSE Euronext, in its midst. U.S. regulators blocked that move, on the basis that a Nasdaq OMX takeover of the New York Stock Exchange would be harmful to equities trading competition in North America.
But Niederauer said global expansion of market operators is inevitable as is consolidation. Which means that NYSE is, with this move, “transitioning to a new normal environment.''
"It's kind of a no-brainer at that point," Niederauer said.
Buying NYSE Euronext at a time when trading volumes are down to roughly 2007 levels means that ICE can "springload this business" and be ready for an upturn.
"These companies are going to have tremendous upside leverage,’’ he said, "like no other company in this industry."
How the two companies will combine their technical operations remains to be seen. But Sprecher said ICE will “explore” how to best use capacity owned and operated by NYSE Euronext.
This includes a newly built $250 million data center in Mahwah, N.J., that houses all NYSE exchange operations in the United States. And has, since opening in 2010, attempted to attract other exchange companies to take space and run their operations from under the same roof.
Under the terms of the agreement, NYSE Euronext shareholders will have the option of receiving $33.12 in cash for each of their shares or 0.2581 of share of IntercontinentalExchange stock or a mix of $11.27 in cash plus 0.1703 of a share of ICE stock.
The New York Stock Exchange will keep its headquarters on Wall Street. ICE will also open a midtown Manhattan office in June 2013.