ICE (ICE) Buys NYSE Euronext (NYX) for $8.2 Billion

On Wednesday, Atlanta-based IntercontinentalExchange Inc. (ICE: Charts, News) announced that it would acquire NYSE Euronext (NYX: Charts, News), and merge its commodities marketplace with the New York Stock Exchange to create one of the world's largest global exchange groups.

ICE is acquiring NYSE Euronext for $8.2 billion in cash and stock, which values the exchange operator at $33.12 per share. The deal implies a value of 13 times earnings for NYSE Euronext - a 37.7% acquisition premium to its previous closing price. To many long-time traders, the acquisition of NYSE Euronext marks the end of an era, as human traders are being rapidly replaced by electronic ones. Daily Chart
This is ICE's second attempt to take over NYSE Euronext, after a failed joint bid with Nasdaq OMX (NDAQ: Charts, News) last year to acquire the exchange for $11.3 billion. The original plan, which was to split NYSE Euronext's derivatives assets to ICE and its equities business to Nasdaq, was thwarted by the U.S. Department of Justice on antitrust grounds. Although the new deal has been announced, it is still subject to regulatory approval in Europe and the United States, as well as being approved by shareholders of both companies. A spokesman for ICE announced that the newly merged company would be an all-in-one exchange covering "agricultural and energy commodities, credit derivatives, equities and equity derivatives, foreign exchange and interest rates." Analysts believe ICE's primary reason for pursuing NYSE Euronext is its derivatives assets - especially its European financial futures business - which will complement its European energy franchise, ICE Futures Europe. Liffe, NYSE Euronext's London-based futures franchise, specializes in commodity trading and short-dated European interest rates. Absorbing Liffe would also help bolster the strength of ICE Futures Europe, and make it a viable competitor with U.S.-based futures giant CME Group (CME: Charts, News), which controls 90% of the futures market. NYSE sees the merger as an opportunity to ride ICE's massive presence to expand its Liffe business into Europe. ICE and NYSE Euronext stated that synergies of $450 million are expected after two years. A major factor in the merger is OTC (over the counter) derivatives clearing houses - which have become a major part of futures trading. NYSE was planning a new $85 million London-based clearing house for listed and OTC derivatives, which would have become a competitor for ICE. This project is now likely to be abandoned, with its clients migrated to ICE Clear Europe. Over the next two years, increased regulations are expected to force "tens of trillions" worth of derivatives through derivatives clearing houses. Analysts believe the clearing houses that can provide OTC and listed derivatives together will be the most profitable. If the deal goes through, the futures and derivatives market - both OTC and listed - will be split between two companies: CME Group and ICE. This could once again trigger antitrust regulations. ICE remains confident that the deal will pass, since its combined market share, though formidable, would only take up 10% of the market. ICE also stated that it has no interest in U.S. cash markets. Investors are expecting the U.S. Department of Justice to approve the deal, but anticipate more resistance in Europe, especially from DG Markt (The Internal Market and Services Directorate General) and the U.K. Office of Fair Trading. RBC Europe analyst Peter Lenardos downplayed those fears, stating, "We do not foresee antitrust risk as there is no significant business overlap (between ICE and Liffe)" - an overlap which critics believe could shut down any smaller startups attempting to compete in derivatives trading and clearing in Europe. Shares of NYSE Euronext have rallied 33% on the news, in line with the acquisition premium, while shares of ICE have dropped 1.5%. Shares of ICE currently trade at 14.8 times forward earnings with a 5-year PEG ratio of 1.3. The stock does not pay a dividend. Other News About NYX NYSE Euronext Deal Won't Change the Way You Trade For most investors, the merger won't change much. NYSE Sells Out: No Room for Tradition in Evolving World of Trade NYSE ends its historic run, merging with ICE to expand into Europe. Other Stocks in the News Apple May Be Secretly Testing TV More speculation regarding the iTV. Oracle Cuts a Cloud Deal Oracle invests more into cloud-based computing. 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Published on Dec 21, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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