ICE-NYSE in the Final Leg of Merger - Analyst Blog

By Zacks | June 26, 2013 AAA

The $8.2 billion merger between NYSE Euronext Inc. (NYX) and IntercontinentalExchange Inc. (ICE) has gained traction with the final verdict of unconditional approval from the European Union Commission (EUC) on Jun 24.

EUC gave its wholehearted support to the merger and disregarded any antitrust concerns. The regulators believe that the acquisition of Europe’s second-largest derivative exchange – NYSE Liffe will not raise any anti-competitive business model, as no significant businesses overlapped.

All Concerns Addressed

Announced in Dec 2012, the aforementioned merger deal was being scrutinized by the EUC. Particularly, the regulators studied the effect of the merger on agricultural and soft commodity derivatives along with the U.S. equity derivatives. Meanwhile, the actions taken by IntercontinentalExchange in Mar 2013, including the allowances and plans to build product committees as well as capping trading fees on soft commodities such as coffee, cocoa and sugar, at least for the next 5 years, alleviated the regulators’ concerns.

Consequently, the merger came clear in Europe and received a green signal, making the NYSE- IntercontinentalExchange merger the third largest global exchange, only behind the leading Hong Kong Exchanges and Clearing and CME Group Inc. (CME). The merger will also help IntercontinentalExchange penetrate deeper into the trading of interest rate futures, thereby gaining strong operating and competitive leverage globally.

Previously in 2011, the EU regulators had rejected the merger deal between NYSE and Frankfurt-based Deutsche Boerse based on such antitrust concerns. According to them, the merger provided ample scope for a monopolistic model in the future, primarily with the fusion of NYSE Liffe and Deutsche Boerse’s Eurex derivative markets.

The U.S. to Wave Green Flag

However, now that the shareholders of both the companies along with the EUC have backed the deal, NYSE and IntercontinentalExchange await the final approvals from financial regulators within the U.S., including Euronext College of Regulators as well as the U.S. Securities and Exchange Commission (SEC), among others. The positive turn of events is likely to lead to a timely culmination of the acquisition of NYSE, which is scheduled by the end of this year.

Following the announcement of approvals in Europe, the share prices of both NYSE and IntercontinentalExchange witnessed an uptick of 1.3% and 1.8%, respectively, on Tuesday.

While IntercontinentalExchange, NYSE and CME Group carry a Zacks Rank #3 (Hold), another outperformer of the exchange industry – CBOE Holdings Inc. (CBOE) carries a Zacks Rank #1 (Strong Buy).

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