by Dan Burrows | December 20, 2012 1:51 pm
Long-suffering shareholders in NYSE Euronext (NYSE:NYX) — parent of the 220-year-old New York Stock Exchange — finally have a decent exit price.
NYSE’s stock jumped more than 33% Thursday to a 16-month high after the Big Board agreed to be acquired by 12-year-old upstart IntercontinentalExchange (NYSE:ICE), a major player in the far more lucrative commodities futures exchange business.
ICE, with a market cap of more than $9 billion, struck a deal for NYSE at $8.2 billion, or $33.12 a share, about a 37% premium to the stock’s Wednesday closing price. And it looks like a win for NYSE shareholders. The company has been on the shopping block for some time — and the stock has been in the tank.
NYSE, recall, was all set to be sold to Germany’s Deutsche Boerse for $9 billion back at the beginning of the year before European regulators scuppered the merger. Indeed, ICE and Nasdaq OMX (NASDAQ:NDAQ) tried to prevent the ultimately failed Deutsche Boerse deal by making an unsuccessful hostile bid of more than $11 billion for NYSE.
It seems it was only a matter of time before NYSE was scooped up by someone.
As we noted recently, the stock exchange business hasn’t been a good one for a long time. The move to decimalization from fractional price quotes has been killing margins for a decade. More recently, revenue has taken a beating from record-low trading volumes, ultra-low interest rates and a decline in listings due to the drop in initial public offerings.
NYSE topped out at north of $100 a share back in early 2007, well before the financial crisis. It hasn’t been anywhere close to that level ever since. Before rallying on the ICE news, NYSE had lost nearly 80% of its value from its all-time high. Heck, for the year-to-date it was off 8%.
Now, after the deal news, NYSE is up more than 20% YTD, trading at levels last seen in the summer of 2011.
So, it’s a good day to be a NYSE stockholder.
As for ICE shareholders, well, they get the best brand in the business, and their exchange becomes a more diversified global player. NYSE’s lucrative European financial futures business appears to be the key to the deal, as it complements ICE’s strength in European energy futures.
As ICE said in explaining the deal to shareholders, the tie-up with NYSE will create a “leading global, end-to-end derivatives franchise spanning agricultural and energy commodities, credit derivatives, equites and equity derivatives, foreign exchange and interest rates.”
But as much as the derivatives business is the real lure, ICE is still betting on a return of some sort of normalcy to all markets. Volume is so low, the idea is that it has to come back at some point.
Maybe, maybe not.
A gradual recovery in volumes of all products — from straight-up equities to futures, options and derivatives — should help all the exchange operators. But with sweeping regulation having put the big banks’ proprietary trading desks, in-house hedge funds and private equity shops essentially out of business, that rebound in volume may be a very long time in coming. If it ever comes back at all.
Until then, ICE has bought a great brand and should be better situated to compete with the biggest player in the industry, CME Group (NASDAQ:CME), the powerhouse in futures and derivatives contracts with a $17 billion market cap.
That is, at least until the next wave of consolidation.
As of this writing, Dan Burrows did not hold positions in any of the aforementioned securities.
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