ICE-NYSE Euronext: Different This Time?

Terry Flanagan

In the opening sequence of Star Trek, it was said the Starship Enterprise would “boldly go where no man has gone before.” IntercontinentalExchange’s proposed buyout of NYSE Euronext doesn’t quite go that far, but given the history of failed exchange mega-mergers, a successful closing would boldly go where no exchange mega-deal has gone in recent years.

Atlanta-based ICE, which handles energy and commodity futures, said today it would buy NYSE Euronext, the world’s largest stock-exchange operator and owner of the iconic New York Stock Exchange. While NYSE Euronext has a stronger brand name, ICE is a bigger company, with an equity-market capitalization of about $9 billion compared with NYX’s pre-announcement $5.8 billion.

A spate of large exchange deals announced in 2010 and 2011 failed due to regulatory, shareholder, or nationalistic concerns — these included Singapore Exchange-Australia Securities Exchange, Deutsche Borse-NYSE Euronext, London Stock Exchange-TMX Group, and even a hostile bid for NYSE Euronext on the part of ICE and Nasdaq.

The list of failed deals “doesn’t mean you shy away” from pursuing another combination, NYSE Euronext Duncan Niederauer told CNBC. Niederauer noted that scale is critical for exchanges, and consolidation of the sector is inevitable. When the ICE opportunity arose, he said the thinking was “why not team up and see if we can do it?”

ICE and NYSE Euronext are U.S.-based companies, but much of the deal’s juice comes from Europe, namely Liffe, NYSE Euronext’s London-based futures unit, which combined with ICE Futures Europe will give a merged company a formidable presence in financial and energy futures. In the U.S., a merger would combine NYSE Euronext’s strength in cash equities with ICE’s derivatives business.

“We’re seeing an obvious pattern of the increased importance of derivatives as part of the trading landscape,” said Tony Kroell, vice president of product marketing for technology vendor Savvis. “When we see a futures exchange partnering with a cash exchange, there are obvious benefits for participants to access cash and derivatives on the same venue.”

The ICE-NYSE Euronext deal stands a better chance of closing than previously proposed exchange mergers, observers say, as there is less business-unit overlap to raise regulatory hackles, and no nationalist concerns about a company being taken over by a foreign firm.

“I believe their businesses are quite complementary,” said Kevin Covington, chief executive of technology concern ITRS. Still, “there is a history of these exchange mergers unraveling.”

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