After more than 200 years in business, the oldest icon of Wall Street is about to fall into the hands of a whippersnapper from Atlanta.
IntercontinentalExchange Inc., a 12-year old market-maker specializing in commodity futures and derivatives, announced Thursday that it had reached an agreement to buy NYSE Euronext Ltd., the parent company of the New York Stock Exchange, for $8.2-billion (U.S.) in cash and stock.
The acquisition will create a transatlantic powerhouse that operates markets in everything from stocks and energy options to sugar futures and interest-rate derivatives. It could also spark a new round of deal-making in the exchange industry, where a flurry of transactions foundered last year over opposition from regulators and shareholders.
For IntercontinentalExchange, or ICE, the real object of desire appears to be the European derivatives arm of NYSE Euronext based in London, rather than the storied stock-trading business centred in New York.
Buffeted by the rise of computer-driven trading and the fracturing of the U.S. equity market into dozens of different venues, the "Big Board" – shorthand for the NYSE – is no longer quite so big.
With roots stretching back to 1792, the NYSE brand still holds considerable lustre. But the once-dominant exchange now accounts for only about 20 per cent of the trading in its listed stocks, down from 80 per cent a decade ago. Profit margins have collapsed and regulatory demands have increased.
ICE will pay $33.12 a share to acquire NYSE Euronext, representing a 38-per-cent premium over Wednesday's closing price.
The boards of both companies approved the deal, which they believe will produce $450-million in cost savings over the first two years of joint operation.
"Our transaction is responsive to the evolution of market infrastructure today and offers a range of growth opportunities, while enhancing competition in U.S. and European markets," ICE chief executive Jeffrey Sprecher said in a statement. He will become chairman and chief executive of the combined entity.
Some investors lamented the way the transaction reflected the diminished status of the Big Board. The NYSE was "the powerhouse, the proxy for America," said Thomas Caldwell, chief executive of Caldwell Securities Ltd. in Toronto, whose firm manages about $1-billion.
While he is happy about what it means for the portfolios he oversees – they hold two million shares of NYSE Euronext – Mr. Caldwell added he is "sad to see an icon quietly dismantled."
Thursday's announcement is the third time in two years that players in the exchange industry have jockeyed to control NYSE Euronext Ltd. The two previous bids failed, torpedoed by regulators on either side of the Atlantic who judged the proposed combinations a detriment to competitive markets.
The failure of those deals – together with other scuppered takeover attempts, such as the one by the London Stock Exchange for Canada's TMX Group – seemed to mark the end of a spasm of consolidation activity within the industry, particularly across borders.
But it appears that the appetite for bulking up remains strong. Some observers predict there could be more deals ahead. A big transaction such as the one between ICE and NYSE Euronext is "like an earthquake," said Mr. Caldwell. "There are lots of aftershocks … Stay posted."
Unlike the two bids last year for NYSE Euronext, Thursday's transaction seems to raise fewer red flags for regulators. ICE has little overlap with NYSE Euronext's business lines. Mr. Sprecher and Duncan Niederauer, chief executive of NYSE Euronext, said they had met with U.S. and European regulators to apprise them of their plan.
Mr. Niederauer will become president of the new entity and chief executive of the NYSE Group. The new company will have dual headquarters in New York and Atlanta.
Purchasing NYSE Euronext is a coup for Mr. Sprecher. An aggressive deal-maker and self-confessed workaholic who founded ICE in 2000, he used acquisitions to expand what began as an online marketplace for energy futures. ICE is also poised to benefit from regulatory change spurred by the financial crisis, which is pushing derivatives trading into clearinghouses such as the ones operated by ICE.
ICE will not keep all of NYSE Euronext's sprawling business. The stock exchanges it operates in Europe – in Paris, Lisbon, Brussels and Amsterdam – will likely become a separate publicly traded company.
But in an interview Thursday with Bloomberg News on the trading floor of the New York exchange, Mr. Sprecher reiterated that the U.S. bourse would not meet that fate. "This floor that we're standing on is a very, very good business," he said. "There's no spinning this off."