Cost of Consolidation

Terry Flanagan

As Bats Global Markets and Chi-X Europe near the completion of their proposed merger, the costs of the transaction are beginning to pile up.

In a regulatory filing with the Securities and Exchange Commission, Bats Global Markets said that it would rack up in excess of $9 million in costs should its bid to acquire Chi-X Europe be approved in December.

Among the costs are fees to be paid to advisors, including lawyers and accountants as well as for retaining staff. In addition, should the deal fall through, Bats would owe Chi-X a $7 million break-up fee.

“We believe that our combination with Chi-X Europe will further our position as a leading transatlantic exchange operator and will solidify us as a preeminent pan-European trading venue,” said the company in a regulatory filing last month. “We expect to benefit from synergies as a result of the acquisition, including the transition of Chi-X Europe to our trading platform, which we expect to be completed during the second quarter of 2012, subject to receiving regulatory clearance for the acquisition.”

The combined entity is expected to realize between $8 million and $10 million in cost savings annually.

The two merger partners last week announced that the U.K. Competition Commission had provisionally approved their transaction.

According to a statement from the Competition Commission, it was concluded that the proposed transaction would not cause any competition imbalances in the country, as customers of either multilateral trading facility could simply “take their business elsewhere.”

“The customers of both these exchanges are in a particularly powerful position to combat any attempt by the merged company to raise trading fees, reduce service quality or otherwise exploit any loss of competition,” said Malcolm Nicholson, chairman of the Bats/Chi-X Inquiry Group.

The commission is expected to have a decision regarding the merger on December 2. Approval from the Competition Commission is the final regulatory hurdle before the transaction can close.

The deal has not been met with any significant resistance as it awaits regulatory approval. Chi-X Europe’s main competitor, the London Stock Exchange Group, had voiced its non-opposition to the merger earlier in the year when it testified in front of the Competition Commission.

“The LSE did not consider that the proposed merger would result in increased or decreased prices,” said the London exchange operator during its testimony in front of the U.K. Competition Commission in July. “If the proposed merger completed or not, both the LSE’s and Turquoise’s strategy would be to compete and grow.”

Bats in May announced plans to go public in a $100 million initial public offering. Initially slated for late 2011, the IPO is now expected to occur in early 2012 as the company awaits the outcome of the Chi-X Europe acquisition.

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