WSJournal. ICE in Deal to Buy NYSE

http://online.wsj.com/article/SB10001424127887324461604578191031432500980.html

NYSE Euronext NYX +31.69% agreed to sell itself to rival IntercontinentalExchange Inc. ICE -2.70% for about $8.2 billion, in a deal that would end more than two centuries of independence for the New York Stock Exchange, one of Wall Street's most enduring symbols of American capitalism.

The two companies said Thursday they agreed to a cash-and-stock transaction that values the operator of the New York Stock Exchange and other markets at $33.12 a share. Investors can opt for all cash, or 0.2581 IntercontinentalExchange common shares for each NYSE Euronext share or a mix of $11.27 in cash plus 0.1703 ICE shares.

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Traders work on the floor of the New York Stock Exchange.

The deal is subject to a maximum cash consideration of $2.7 billion, as ICE said it will pay out about 67% in shares and 33% in cash as part of the deal.

The deal would broadly expand ICE's profile from an energy-focused futures-market operator to a fully-diversified exchange company running stock, options, futures and trade-clearing services on both sides of the Atlantic. It would present a formidable competitor to larger, but less-diversified peers such as CME Group Inc. CME -1.73% and Germany's Deutsche Börse DB1.XE +0.86% AG.

The combined company will own 14 exchanges and five clearinghouses, ICE Chairman and Chief Executive Jeffrey Sprecher said following the announcement.

NYSE Trading Floor Over the Years

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While ICE said it would preserve the NYSE Euronext brand and maintaining the position of NYSE Liffe in London for derivatives contracts, it said it would explore an initial public offering of Euronext as continental European entity. Euronext operates stock-exchange businesses in France, the Netherlands, Belgium and Portugal.

The deal as announced Thursday is positioned ahead of an expected "market recovery," according to the companies, with eventual increases in key interest rates helping to boost trade in NYSE Euronext's London-based futures market, the Big Board parent's unit that has struggled with slow trading activity due to interest rates holding near historic lows.

"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 and broadening our ability to address new markets and offer innovative products and services on a global platform," Mr. Sprecher said in a statement.

The acquisition is expected to close in the second half of 2013. ICE said the deal would be "highly accretive" in its first year.

Mr. Sprecher would be chairman and CEO of the combined company, while NYSE Euronext CEO would be president of the combined company and CEO of NYSE Group, the companies said.

Exchanges have turned in recent years to mergers to help offset intense competition and the relentless decline in trading commissions they pocket from brokers and other market participants. Yet the deal-making appeared to reach its limit last year, when several large cross-border mergers failed amid regulators' concerns.

The discussions come about a year and a half after ICE last tried to acquire at least a piece of NYSE Euronext. ICE and Nasdaq OMX Group Inc. NDAQ +2.27% had proposed in April 2011 to buy NYSE Euronext for about $11 billion. As part of the offer, Atlanta-based ICE had looked to buy NYSE Euronext's derivatives businesses, while Nasdaq would have taken control of the stock exchanges.

That bid fell apart six weeks later after the U.S. Department of Justice warned it would reject the deal on antitrust grounds.

NYSE Euronext, which agreed to merge with Deutsche Börse before ICE and Nasdaq stepped in, had rejected the duo's unsolicited proposal twice. NYSE's deal with its German counterpart also was rejected by regulators.

A combination of ICE and NYSE Euronext would likely raise fewer regulatory concerns because the two exchange groups don't have as much direct overlap in the markets they run. ICE's main business lies in energy futures trading, a sector where NYSE Euronext has made few inroads. NYSE Euronext's own futures markets in the U.S. and Europe are largely geared toward financial derivatives linked to interest rates and stock indexes.

Unlike NYSE Euronext, ICE has steered clear of stocks and stock-options trading, preferring to focus on the more-profitable business of futures trading, where exchanges are able to control both the trading and processing of contracts.

"The Board of NYSE Euronext carefully considered a range of strategic alternatives and concluded that ICE is the ideal partner for NYSE Euronext in an evolving market landscape," said Jan-Michiel Hessels, the chairman of NSE Euronext's board.

NYSE Euronext's shares have fallen almost 32% since ICE and Nasdaq launched their joint bid last year. The shares are down nearly 8% this year.

The stock surged 24% to $29.80 in after-hours trading Wednesday after The Wall Street Journal reported the company's talks with ICE. Shares of ICE have climbed 6.4% in 2012, and rose another 1.2% in after-hours trading.

Both shares rose further on Thursday.

At $33.12 a share, ICE's offer for NYSE represents a 37.7% premium over Wednesday's market closing price of $24.05, the companies said.

The New York Stock Exchange, or Big Board, was the U.S. stock market's dominant exchange for decades. The exchange began to draw significant competition with the 1990s emergence of all-electronic rival Nasdaq Stock Market, along with new rules that allowed shares to be traded more freely across multiple venues. NYSE's open-outcry auctions, held on its historic trading floor, were challenged by the faster, cheaper alternatives its electronic rivals could offer.

In 2005, the Big Board acquired electronic-trading company Archipelago Holdings Inc., transforming NYSE into a public company and reflecting the growing importance of computer-driven trading. Since then, the market has moved further away from exchanges and into private trading venues known as dark pools run by Wall Street banks and brokerage firms. The shift in trading volume has forced for-profit exchanges to look for new ways to make money and has fueled a series of merger attempts.

"NYSE clearly has had a challenging time," said Thomas Caldwell, chairman of Caldwell Investment Management Ltd., a Toronto-based firm that owns approximately two million NYSE Euronext shares. "There is a desire or possibly even a need to do some deal, after the failure with Deutsche Börse."

Indeed, the nation's oldest stock-exchange company now is negotiating a deal worth several billion dollars less than what ICE and Nasdaq had offered less than two years ago.

ICE, founded in 2000, has its roots in electronic commodity trading and runs the world's biggest energy futures market out of London, as well as smaller commodity markets in the U.S. and Canada. Surging demand for resources from developing countries like China and India has helped extend a prolonged rally in commodity prices. It also has helped fuel growth in commodities trading, buoying ICE's profits even as rivals such as CME Group Inc. and NYSE Euronext struggled with slowdowns in financial derivatives and stock-trading.

ICE's Mr. Sprecher, a former engineer who founded the company, is known in the exchange business for his daring deal-making—and his uneven track record for completing those deals. He has bought several exchanges in the U.S. and the U.K. In 2001, ICE acquired the International Petroleum Exchange, home to most of the trading in Brent crude-oil contracts. After the deal, ICE's London-based exchange closed its trading floor.

But before his joint effort with Nasdaq OMX to acquire the Big Board, Mr. Sprecher had tried unsuccessfully to wrest the Chicago Board of Trade from its agreed-to merger with the Chicago Mercantile Exchange in 2007. Earlier this year, ICE lost a bid to acquire the London Metal Exchange.

Months after Nasdaq and ICE dropped their pursuit of NYSE Euronext, which drew some sharp critiques of the Big Board's management and board by Nasdaq and ICE, Mr. Sprecher spoke to NYSE Euronext Chief Executive Duncan Niederauer to ensure there were no hard feelings, according to people familiar with the conversation.

ICE is now bigger than NYSE Euronext, at least by market value. ICE's market capitalization as of Wednesday's close stood at $9.3 billion, compared with NYSE Euronext's $5.8 billion.

A person familiar with the ICE-NYSE discussions said the deal has been complicated by the various businesses each company owns in the U.S. and elsewhere.

Other exchange operators, including CME Group, also could be interested in NYSE Euronext, according to one person familiar with their thinking. A spokeswoman for CME declined to comment.

Acquiring NYSE Euronext's prized U.K. futures market, Liffe, would give commodities-focused ICE a long-sought entry to fixed-income futures, which banks, asset managers and insurance companies use to hedge against shifts in key interest rates. Last year, ICE was poised to pay more than $6 billion for control of Liffe.

—Anupreeta Das, Jenny Strasburg and Jacob Bunge contributed to this article.

Write to Ben Fox Rubin at ben.rubin@dowjones.com and Jacob Bunge at jacob.bunge@dowjones.com