By Jacob Bunge
IntercontinentalExchange Inc. (ICE) could return hundreds of
millions of dollars in excess cash to its investors after the
derivatives market operator on Friday lost a bidding battle to
acquire the London Metal Exchange, according to analysts.
Shares of ICE climbed on the news that Hong Kong Exchanges &
Clearing Ltd. (0388.HK) secured a deal to buy the LME for about
$2.15 billion after a protracted bidding process that ended Friday.
ICE stock recently was 4.4% higher at $134.49 after trading at
nearly $136 earlier, its highest level in more than a month.
"We could see ICE returning [about] $500 million in capital,
which could fund a $7 one-time dividend or buy back 5% of shares,"
wrote Ed Ditmire, analyst for Macquarie Securities, in a research
note Friday.
A spokeswoman for ICE declined comment. The company had not
confirmed it was in the running to buy the LME.
ICE's deals team meets every two weeks to evaluate potential
acquisitions, and the company has been among the most active
dealmakers in the exchange sector. In recent years ICE has
purchased Climate Exchange plc, the Clearing Corp. and the New York
Board of Trade as a means of adding new products and services.
The Atlanta-based company has about $1 billion in cash on hand,
according to analysts. Some of that ICE needs to hold for
regulatory reasons related to its business of processing customers'
trades, but ICE executives have said the company likely will return
some of the remainder if they cannot find sensible ways to spend
it.
"We're starting to see some downside pricing pressure on certain
public companies," ICE Chief Executive Jeff Sprecher had said on a
conference call last month discussing first-quarter results. "We
would like to be opportunistic if those opportunities come along;
otherwise, we will return the capital."
A special dividend of roughly $9.56 per share or a buyback
representing about 8% of ICE's float are possible should ICE decide
to hand cash back to its investors, Evercore Group analyst Chris
Allen told clients in a research note Friday. "We would not be
surprised to see a return of capital, although ICE would probably
retain some excess cash flexibility in case another opportunity
appeared," Allen wrote.
Losing a protracted bid battle for the LME adds to the list of
sometimes daring but ultimately unsuccessful deals pursued by ICE.
The company earned renown for its uninvited bids to buy the Chicago
Board of Trade and the derivatives business of NYSE Euronext (NYX),
the latter part of a joint effort with Nasdaq OMX Group Inc.
(NDAQ).
CME Group Inc. (CME) wound up with the CBOT and the effort to
acquire the Big Board parent drew opposition from U.S. antitrust
regulators.
-Write to Jacob Bunge at jacob.bunge@dowjones.com