IntercontinentalExchange's $8.2 billion takeover of NYSE Euronext sets the scene for a four-way battle over Europe's lucrative financial derivatives market.
ICE's audacious swoop, announced on Thursday, gives the upstart commodities and energy bourse control of NYSE Liffe, Europe's second-largest futures exchange, and a major advantage over U.S. rivals CME Group and Nasdaq OMX.
All three want to challenge Deutsche Boerse's European dominance as a shake-up in banking regulation is expected to increase demand sharply for clearing financial derivatives through such exchanges.
"The deal would place a bigger and more aggressive competitor on Deutsche Boerse's doorstep," said Richard Perrott, an analyst at Berenberg Bank.
Regulatory changes in the wake of the financial crisis are forcing banks to channel derivatives business through clearing houses and regulated exchanges to ensure their risk positions can be better monitored than they were when bank dealers were trading complex contracts directly among themselves.
The reforms are expected to be fully operational in Europe in 2014.
ICE's takeover of NYSE Liffe will give it an advantage of existing presence in Europe over Chicago-based CME, owner of the world's largest futures market, and New York's Nasdaq, both of which plan to open their own London-based exchanges next year.
While the New York Stock Exchange, an enduring symbol of American capitalism, is NYSE Euronext's prestige business, London's Liffe is the real jewel in the crown.
With profits from stock trading significantly eroded by new technology and the rise of other places for investors to trade, the stock market businesses like NYSE are less valuable to ICE.
Indeed, the company has said it will try to spin off NYSE's Euronext European stock market businesses in a public offering, generating speculation, denied by the company, that it may also have little interest in the NYSE trading floor on Wall Street.
NYSE made an operating income of $473 million from Liffe in 2011 on revenues of $861 million compared to an income of $533 million on revenues of $1.3 billion from its equities business.
ICE's Jeff Sprecher will be CEO of the combined organization and Duncan Niederauer, the NYSE Euronext CEO, will be president — a post he said he plans to remain in until at least 2014.
Friends for years, Sprecher and Niederauer stopped talking for a time in 2011 when ICE teamed up with Nasdaq OMX Group to bid for NYSE Euronext just as Niederauer was trying to arrange an agreed sale to Frankfurt's Deutsche Bourse. In the end, both deals were killed by concerns they would be anti-competitive.
Since it lacks the huge equity operations of Nasdaq or Deutsche Bourse, ICE has far less overlapping business with NYSE and so should win regulatory approval, antitrust lawyers said.
ICE started out as an online marketplace for energy trading before Sprecher initiated a string of acquisitions, from the London-based International Petroleum Exchange in 2001, to the New York Board of Trade and, most recently, a handful of smaller deals, including a climate products exchange and a stake in a Brazilian clearing house.
A combined ICE-NYSE Euronext would leapfrog Deutsche Boerse to become the world's third largest exchange group with a combined market value of $15.2 billion. CME Group has a market value of $17.5 billion, Thomson Reuters data shows.
Hong Kong Exchanges and Clearing is the world's largest exchange group, with a market cap of $19.5 billion.
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