In 2001, power company executive Jeffrey Sprecher wandered the exhibits of the futures-trading industry’s annual convention in Boca Raton, Florida with an idea nobody wanted to hear.
“I was just looking for help” to develop an electronic trading system for energy and metals, Sprecher recalled in a 2007 interview. Even with backing from Goldman Sachs Group Inc. and Morgan Stanley, “I just couldn’t get people interested in what we were trying to do,” he said.
Eleven years later, the 57-year-old founder and chief executive officer of Intercontinental Exchange Inc. has become the most prolific deal seeker in the industry. He made $2.51 billion in successful bids for the International Petroleum Exchange, the New York Board of Trade, the Clearing Corp. and the Climate Exchange Plc and at least $23.1 billion in unsuccessful ones for the Chicago Board of Trade, the London Metal Exchange and NYSE Euronext.
Today’s offer of $8.2 billion for the company that owns the 220-year-old New York Stock Exchange is the latest example of how Sprecher has used his appetite for acquisitions to upset the balance of power in the exchange world. If the deal is completed, in 11 years he would have grown an oil exchange in London into the world’s second-biggest futures market by volume, according to data from the Futures Industry Association.
“He has no fear of failing,” said James Newsome, a former chairman of the Commodity Futures Trading Commission who first met Sprecher in the early 2000s and then became his competitor as CEO of the New York Mercantile Exchange. “If he thinks it’s the right move, he goes after it. Jeff has been the most aggressive within our space.”
Intercontinental, based in Atlanta, will pay $33.12 a share for the owner of the New York Stock Exchange, 38 percent above yesterday’s closing price, according to a statement today. Last year, a joint hostile bid by Intercontinental, also known as ICE, and Nasdaq OMX Group Inc. for the NYSE was blocked by the U.S. Justice Department on concern the combination would dominate U.S. stock listings.
The agreed merger between the NYSE and Deutsche Boerse AG that Sprecher was trying to disrupt was rejected by European competition authorities in February.
Asked today in a telephone interview how he thinks the futures industry views him now, Sprecher joked: “As a guy who doesn’t know what he’s doing.” He said that many of the exchange leaders he’s known are retiring and that younger people at futures industry conferences look to him now as a veteran, even if he doesn’t see himself that way.
Sprecher (Source: ICE)
“I feel like I haven’t been in this business very long,” he said. “There’s still a lot to learn.”
Sprecher’s vision for electronic trading helped transform the futures industry from a market where contracts were bought and sold by men in brightly colored jackets yelling orders at each other in pits, to exchanges using computer-based transactions. CME Group Inc., the world’s largest futures market, said last month a record 88 percent of its contracts traded electronically.
“Because he was an outsider his mind wasn’t grayed by how the business had been done for 150 years,” said Newsome, the former Nymex CEO.
In 2001, Sprecher bought London’s International Petroleum Exchange, which was later re-named ICE Futures. The exchanges that had an early chance to buy into Intercontinental watched it become a $9.3 billion competitor.
Sprecher built the company through increased energy futures trading that helped it achieve a compound annual growth rate of 43 percent from 2005 to 2011, he said at a Goldman Sachs financial services conference earlier this month. Average daily trading of the company’s futures and options on futures contracts has grown more than four-fold to 1.5 million trades in 2011 from 322,000 in 2005, he said at the conference.
Shares of ICE closed at $128.31 yesterday in New York, a 227 percent jump from a closing price of $39.25 on Nov. 16, 2005 when the company went public.
Sprecher received $1.04 million in salary last year, according to data compiled by Bloomberg. He owns 1.37 million shares of his company, valued at $175 million as of yesterday’s closing price.
In 1995 Sprecher was a power plant developer who had never traded a day in his life. He knew nothing about how exchanges worked when he approached the CBOT to ask their help in developing his electronic platform to trade electricity, he said in the 2007 interview.
“They gave me a lot of advice on how to design my electronic platform,” Sprecher said. The exchange also lent him credibility because they attended meetings with potential customers with him while he was still relatively unknown, he said.
In 2007 he was back, making a surprise bid for the CBOT, whose shareholders instead agreed to sell to the Chicago Merc for $11.3 billion, less than the $11.8 billion Sprecher had offered.
The attempt highlighted his flair for the unexpected. Kelly Loeffler, who is Intercontinental’s vice president of investor relations and Sprecher’s wife, paid a bellboy at the Boca Raton Resort & Club to slip the CBOT proposal under the doors of Charles Carey and Bernard Dan, the chairman and CEO of CBOT, at 6:45 a.m. that morning, according to a person with direct knowledge of the matter.
Carey, who is now a partner at Henning & Carey Trading Co., was shaving at the time the proposal slid under his door, according to another person familiar with the matter.
Intercontinental offers contracts based on European energy commodities such as Brent crude, natural gas and heating oil at its London-based ICE Futures Europe exchange. In the U.S., it offers futures on agricultural commodities such as coffee, cocoa and sugar as well as Russell stock indexes and currencies at ICE Futures U.S. The company owns the world’s largest clearinghouse for credit-default swaps, ICE Clear Credit LLC.
Merging NYSE Euronext, which owns the biggest exchanges by value of listings in the U.S., France and the Netherlands, with the second-largest U.S. futures market underscores both the growing importance of derivatives and the diminishing influence of the NYSE. The Big Board, once the benchmark for global free markets, has seen its share of trading in stocks listed on the exchange decline to 21 percent from 82 percent.
Next page: NYSE Squeezed
“Not only are they losing volume, they’re also getting squeezed in their margins because of all these competitors who have different corporate structures,” Thomas Caldwell, who oversees about $1 billion as chairman and chief executive officer of Toronto-based Caldwell Securities Ltd., said in a telephone interview. His firm owns shares of NYSE and ICE. “They’re languishing as everyone sits and waits for cash equity volumes to pick up, which may or not occur for several years.”
Sprecher was born in 1955 and raised in Madison, Wisconsin. He graduated with a Bachelor of Science degree in Chemical Engineering from the University of Wisconsin at Madison, and received an MBA from Pepperdine University in Malibu, California. Prior to buying the Continental Power Exchange in 1997, Sprecher founded and was for 14 years the president of Western Power Group, Inc., an owner, developer and operator of power plants in California.
In 2000, the year before he wandered halls of the futures’ convention, he tried, along with Goldman Sachs banker Gary Cohn and Neal Shear and John Shapiro of Morgan Stanley, to convince the New York Mercantile Exchange, the Chicago Merc and the CBOT that his idea for a new electronic platform to trade energy and metals would be a success.
Cohn is now president of Goldman Sachs. Shear rose to global head of sales and trading at Morgan Stanley and later worked at Apollo Management LP and UBS AG before helping co- found hedge fund Higgs Capital Management LLP earlier this year. In 2008 Shapiro left Morgan Stanley, where he ran global commodities trading.
Sprecher, Cohn and Shapiro managed to present their idea to Nymex board, which listened to the idea and asked them to wait outside while a decision was made. An hour later, they were told that the exchange wasn’t interested, people who were in the room said.
Sprecher had better luck with his latest bid. Boards at Intercontinental and NYSE approved the proposed acquisition and the companies expect to complete the transaction in the second half of 2013, according to the statement today.