London’s quality of Liffe at heart of NYSE purchase

TAKING control of the London-based Liffe derivatives market is the main reason Intercontinental Exchange (ICE) paid $8bn (£4.9bn) for exchange operator NYSE Euronext, analysts declared yesterday.

Although the NYSE Euronext group includes the venerable New York Stock Exchange and equity markets across Europe, it is the derivatives arm that offers growth opportunities as new regulations force more trades to be carried out on electronic platforms.

“The vast majority of the value can be attributed to the derivatives business. They want to be in Europe, in size, because of all the regulations that are coming in” Peter Lenardos, an analyst at RBC Capital Markets, told City A.M..

“Even assuming there’s no recovery in market conditions then clearing volumes should increase. If you layer that into a market recovery then it could be quit exciting.”

However he warned that “the price is quite generous”.

Yesterday’s announcement is a personal triumph for 57-year-old ICE chairman and CEO Jeffrey Sprecher, a prolific dealmaker who only founded the business in 2000. His company will be the dominant party in the new venture, with NYSE Euronext receiving only four of the 15 seats on the merged board.

Current NYSE CEO Duncan Niederauer will become president of ICE and report directly to Sprecher.

Although the deal will require regulatory approval this is more likely to succeed than recent failed attempts to consolidate the exchange sector (see box), such as ICE’s own attempt to join forces with Nasdaq and buy NYSE Euronext in 2011.

If completed it will make ICE – which lost its bid to buy the London Metal Exchange this summer – a major player in the London market. The deal also raises the prospect of Liffe traders enjoying easier access to ICE’s existing platforms.

NYSE Euronext were advised by Perella Weinberg and BNP Paribas, while Morgan Stanley advised ICE.


ICE for London Metal Exchange
■ When dropped? June 2012

■ Bid value? £1.3bn

■ What went wrong? ICE’s bid was beaten by Hong Kong Exchanges & Clearing, which paid £1.39bn for the LME.

■ What happened next? ICE continued its worldwide expansion with yesterday’s purchase of NYSE Euronext.

Deutsche Borse for NYSE Euronext
■ When dropped? January 2012

■ Bid value? $9bn (£5.5bn)

■ What went wrong? The European Commission feared a quasi-monopoly in the derivatives market and rejected it.

■ What happened next? Deutsche Borse challenged the commission’s decision in the EU’s General Court in Luxembourg.

LSE for TMX Group, Toronto
■ When dropped? June 2011

■ Bid value? £2.2bn

■ What went wrong? Deal was scrapped due to lack of support among TMX’s shareholders.

■ What happened next? Maple Group, a consortium of Canadian banks and brokerages, won control of TMX last year.

ICE and Nasdaq for NYSE Euronext
■ When dropped? May 2011

■ Bid value? $11.3bn (£6.9bn)

■ What went wrong? Rejected by US regulators on fears the merged company would dominate US stock listings.

■ What happened next? Earlier this year Nasdaq said “other mergers will happen in the future”.