ICE purchase of NYSE reflects changing times

Adam Shell, USA TODAY | USATODAY

NEW YORK -- The parent company of the two-century-old New York Stock Exchange, best known for its stock trading business and iconic trading floor, has been acquired for $8.2 billion by InterContintenalExchange, a 12-year-old upstart that specializes in commodities, futures and derivatives trading.

The deal marks the latest chapter in the quickly changing and increasingly global exchange business. The business of buying and selling securities has been revolutionized in the past decade by tech innovations that have reduced the need for human traders, sped up trade executions to milliseconds and paved the way for the creation of ever-sophisticated trading strategies.

While ICE is a rising star in the exchange world, it said it will operate dual headquarters in Atlanta and New York, and stressed that it has no current plans to shut down the NYSE's famous trading floor, a move cheered by U.S. Sen. Charles Schumer (D-NY). "They have assured me they will keep the floor open," said Schumer. "I am pleased they will keep the New York Stock Exchange name and protect the brand."

ICE is acquiring the NYSE's parent NYSE Euronext for $33.12 a share, 38% above Wednesday's close. Shares closed Thursday at $32.25. ICE shares rose $1.79 to $130.10.

The deal marries NYSE Euronext's global stock and derivatives franchises with ICE's global clearing house business and its commodity and derivatives exchanges. ICE's futures trading business includes commodities ranging from coffee to coal and crude oil to currencies. The merger will result in an estimated earnings bump of 15% in year one. The deal is expected to close next year pending regulatory approval. ICE estimates $450 million in cost savings in year two, as redundancies are eliminated, which is key given reduced trading volumes and higher regulatory costs.

THE PRESS RELEASE: Details of the deal

"This transaction leverages the strength of our iconic brand," said Duncan Niederauer, CEO of NYSE Euronext. "We are bringing together two highly complementary businesses."

The main attraction for ICE is not NYSE Euronext's equity business -- which has been in decline since the 2009 financial crisis and which has been hurt by the shift to electronic trading, RBC Europe analyst Peter Lenardos notedin a research note. ICE is targeting its London-based LIFFE derivative exchange, which will enable U.S.-based ICE to "gain access" to Europe's sought-after futures and options business. The new exchange will also be able to better compete with the CME Group, a U.S. competitor that runs runs a huge dervivatives business via ownership of the Chicago Mercantile Exchange and Chicago Board of Trade.

"Our transaction ... offers a range of growth opportunities,while enhancing competition in U.S. and European markets and broadening our ability to address new markets and offer innovative products and services on a global platform," said ICE chairman and CEO Jeffrey Sprecher.

The deal marks the latest move towards industry consolidation, driven largely by reduced trading volumes and intense competition. Since ICE and NYSE Euronext businesses have little overlap, Lenardos told clients that he doesn't foresee anti-trust risk. The deal could jump-start "mega-mergers,"anwhere the top players are "keen to consolidate," he adds.

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More than a year ago, ICE and Nasdaq OMX Group attempted a hostile takeover of NYSE Euronext, but the deal was blocked by the U.S. government, which feared the Nasdaq and NYSE would have a stock trading monopoly in the U.S. European regulators later balked at a proposed alliance between NYSE Euronext and Deutsche Bourse.