On Thursday, Dec. 20 IntercontinentalExchange (ICE) announced that it had reached a definitive agreement to acquire NYSE Euronext in a stock-and-cash transaction. The announcement seemed anti-climactic given the high profile M&A dance a year prior between NYSE Euronext and Deutsche Börse (DB) and the attempt to scuttle it by a joint counteroffer by ICE and Nasdaq OMX.
The acquisition price, $31.12 per share(roughly $8.2 billion), was a considerable discount to what DB was offering a year earlier and the terms seemed less desirable to NYSE than the DB deal, which was presented as a merger of equals and included a larger role for NYSE boss Duncan Niederauer and more representation on the board of the combined entity from NYSE board members.
We asked ICE Chairman and CEO Jeff Sprecher to give us the skinny on the deal, what synergies are involved and how he will manage his expanding firm. Here is what he had to say.
Dan Collins: What are the largest benefits for ICE and it shareholders from the acquisition of NYSE Euronext?
Jeff Sprecher: ICE has a strong track record of successfully integrating businesses. Since acquiring the International Petroleum Exchange in 2001, ICE Futures Europe volumes have set new records every year. Volumes at the former New York Board of Trade have doubled since we acquired it in 2007. Based on the complementary asset classes, the combined company will be a leading operator of regulated, global markets with strong cash flows and deep resources to pursue growth opportunities. We have identified significant synergies and expect the transaction to be highly accretive for shareholders in the first year after closing, and importantly remain a growth leader in our sector.
DC: Your joint offer along with Nasdaq for NYSE was struck down by regulators as was the NYSE/DB merger. Do you anticipate any antitrust issues? If the Liffe commodities business is seen as a potential antitrust stumbling block, could that be split off?
JS: We can’t speculate on regulatory matters, but we are working diligently to secure all required regulatory approvals and provide all required information in a timely manner. Our businesses serve different markets, different geographies and different clients, and this is something we looked at prior to completing our agreement.
DC: How will this deal change the landscape of the futures industry? The securities industry?
JS: In many ways, this combination is consistent with the way markets have evolved, particularly in a world of increased regulation, transparency and global competition. We believe the combined company will benefit the broader market through increased resources, continued innovation and a focus on solving market structure challenges to support growth for our customers. And as the regulatory landscape continues to change, the combined company will be in a strong position to offer compliance solutions for customers coping with an evolving mix of global regulations.
JS: We expect to achieve our projected $450 million in synergies in the third full-year post-closing, which includes $150 million in efficiencies related to NYSE Euronext’s current cost-savings program. Significant savings are expected related to technology, clearing and duplicative expenses.
DC: How many clearinghouses does this give you? Will any of them be merged? Will end users see any savings through margin offsets involving your various clearing entities?
JS: ICE currently operates five clearing houses: ICE Clear U.S., ICE Clear Europe and ICE Clear Canada as well as a separate North American clearing house for CDS (ICE Clear Credit) and one of the oldest independent clearing houses in the world, The Clearing Corporation. Under a separate agreement announced in December, ICE Clear Europe will provide clearing services for the London markets of NYSE Liffe beginning in mid-2013. ICE will draw on its experience in successfully transitioning more than 40 clearing members, 26.5 million contracts and more than $16 billion worth of assets during the transition from LCH.Clearnet Ltd. to ICE Clear Europe in 2008. Operational efficiencies are likely, though whether margin offsets are possible, it would be too early to say — however, the primary driver is the need for Liffe customers to have certainty around the delivery of an EMIR-compliant clearinghouse.
DC: In about a decade’s time you have gone from running a niche energy market to the head of one of the largest exchange and clearing firms encompassing almost every asset class. How difficult has it been and will it be to manage all the different exchanges and clearinghouses that make up ICE?
JS: We will be drawing from a strong bench of experienced leaders at both ICE and NYSE Euronext to manage the various business lines. We will also benefit from the inherent scalability of the exchange business where we already operate many platforms and where we've had the experience of integrating new businesses. The technology platform synergies in particular are good examples of where we can streamline costs and processes. Creating a premier global market operator with a diversified mix of asset classes and risk management services enhances our growth opportunities while underpinning our continued ability to realize efficiencies, provide a consistent regulatory and market framework across asset classes, and continue to invest in innovative solutions to support our customers' requirements.