IntercontinentalExchange's NYSE Euronext Takeover Rocks Financial Sector
21 Dicembre 2012 - 3:45PM
Marketwired
IntercontinentalExchange Inc. (NYSE: ICE) made headlines around the
world recently, as its $8.2 billion bid to acquire the NYSE
Euronext Inc. (NYSE: NYX) has been approved by both boards. It is
currently set to conclude some time next year but also still needs
the approval of a number of securities regulators along with
antitrust officials in Portugal, the UK, and Spain. The massive
deal will have industry-wide ramifications and begs a series of
questions.
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Why did the deal happen now? Cutting costs appears to be a major
driver for the newly completed deal. Nearly all exchanges have been
battling similar headwinds for the past year. Reduced volumes and
increased pressure from regulatory changes have made it
increasingly difficult to widen margins. The newly formed giant
will alleviate much of the pressure applied by these factors.
Where was each company going prior to the deal? The direction
each company was heading in also played a role in the deal being
completed. The longstanding NYSE Euronext has steadfastly hung onto
ailing and volatile equities markets while ICE is tapped into the
burgeoning derivatives business which many deem to be the future of
finance.
What will the deal mean for shareholders? According to the terms
of the deal, NYSE Euronext shareholders have three options. A
released statement says they can opt for $33.12 in cash per share,
.2581 shares of ICE or a combination of $11.27 in cash and .1703
shares. Shortly following the completion of the deal, NYSE Euronext
shares climbed 34% to close at $32.25 while ICE improved by a more
modest 1.4%.
Will the Big Board and trading floor change? ICE has promised
both officials at the NYSE and New York state officials that it
will keep the floor as it is, although one must wonder for how
long. The shift to faster electronic systems and embracing of new
technologies propelled the 12-year-old ICE to its current vaunted
status. How long will traditional floor trading really last?
Who's the winner? This is much more difficult to determine as
the deal looks to be almost mutually beneficial. Many are giving a
slight edge to ICE though because it will now have access to NYSE's
futures market, the London International Futures Exchange, known as
Liffe. NYSE's equities business could be strengthened by the
deal.
Who may be negatively impacted? The Chicago based CME Group
controls roughly 90% of the U.S futures market, and will likely
have a tougher time maintaining this figure in the wake of the
takeover. The newly formed exchange giant could be a much more
looming competitive threat. Because of this, many suspect other
exchanges will respond in the coming months with deals of their own
to better combat this new threat.
What's next? The industry's focus will likely shift away from
the deal quickly as more provisions of the Dodd-Frank Financial
Reform Act are set to go into effect. Specifically, the law will
require derivatives trades to pass through clearinghouses. These
clearinghouses will hold collateral from both sides of a trade in a
change aimed at reducing the risk of harming broader financial
systems.
Moving forward, the deal currently looks to be a plus for all
parties involved. Soon the focus will likely move back towards
handling regulatory changes and what direction the U.S. economy
will move in. Broader markets did improve this week as optimism
over a fiscal cliff compromise increased even though President
Obama vowed to veto a recent proposal from Republicans. Resolution
of the fiscal cliff crisis will be pivotal for the financial sector
to resume focusing on growth and less on preparing for an uncertain
future.
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