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NYSE to be bought by upstart rival for $8.2 billion

The buyer is IntercontinentalExchange Inc. of Atlanta, a mostly unknown electronic exchange that launched 12 years ago.

December 21, 2012|By Andrew Tangel, Los Angeles Times
  • Traders gather at the Intercontinental Exchange post on the floor of the New York Stock Exchange, which has been unable to keep up with cheaper and faster trading on electronic exchanges.
Traders gather at the Intercontinental Exchange post on the floor of the… (Richard Drew, Associated…)

NEW YORK — For more than two centuries, New York Stock Exchange traders barking buy and sell orders symbolized American capitalism at work.

But the last decade has witnessed the rise of the machines — electronic exchanges offering cheaper and faster stock trading. The Big Board could not keep up.

Now, the NYSE is issuing a sell order — its own.

The world's most well-known exchange operator said Thursday that it had agreed to be bought by a mostly unknown electronic rival for $8.2 billion. The David-and-Goliath deal crystallizes how far the NYSE has fallen behind its more nimble, upstart rivals.

The buyer is IntercontinentalExchange Inc., which has become a financial powerhouse trading futures and derivatives involving commodities like oil and sugar. The Atlanta company would take over a trophy financial brand and command a pulpit both on Wall Street and in Washington.

"The trading floor died a long time ago," said James Angel, a professor of finance at Georgetown University. "What you see on the floor are people who are tending to the computers."

This deal catapults ICE from relative obscurity into a top global player.

The company was founded 12 years ago in an office park in a woodland area along the Chattahoochee River in suburban Atlanta.

ICE expanded through acquisitions during the last decade and went public — on the NYSE — in November 2005. Analysts forecast that ICE's revenue will reach $1.4 billion this year, more than double the $574 million it reported in 2007.

Its chief executive, Jeffrey Sprecher, is a trained chemical engineer who attended business school at Pepperdine University in Malibu and still maintains a house in Los Angeles. He will be chairman and CEO of the newly combined company, while NYSE Euronext CEO Duncan Niederauer will be its president.

"ICE has to view it as a major coup," said Richard Sylla, a financial historian at New York University. "It has nothing like the icon status of the New York Stock Exchange."

Analysts saw ICE's planned takeover as a logical culmination of years-long trends in financial markets.

As competition from rival stock-trading platforms increased, NYSE Euronext saw its share of equity trading plummet in an increasingly fragmented marketplace. At the end of 2005, the year ICE went public, the upstart had a market capitalization of $2 billion. In 2006, the year it went public, NYSE Euronext had a market cap of $15.2 billion.

But ICE eventually eclipsed the market behemoth. By Wednesday, NYSE's market cap had shrunk to less than $6 billion, while ICE's market cap had grown to about $9 billion.

The deal marks only the latest potential deal involving NYSE Euronext.

Last year, NYSE rejected an $11-billion bid by ICE and Nasdaq OMX Group Inc., which competes with the NYSE for stock listings.

Before that, the German exchange Deutsche Boerse made a bid for NYSE Euronext, but that was scuttled by European regulators. NYSE Euronext itself was formed in a 2007 merger when NYSE Group, parent company of the exchange, got together with Euronext, which owned stock exchanges in Europe.

The deal would give ICE a foothold in the derivatives and futures markets in Europe, analysts said.

Notably, NYSE Euronext owns the London International Financial Futures Exchange.

For its part, ICE said it is "committed to preserving" NYSE Euronext's brand and would maintain dual headquarters in Atlanta in New York.

But the deal is not complete. Anti-trust regulators must sign off on the acquisition before it becomes final, possibly in the second half of 2013.

Because ICE has no equities business, regulators will not be worried about its acquisition of the NYSE, Angel said.

For ICE, the real attraction of NYSE is its derivatives business.

"This deal does not present any of the antitrust issues that the last two proposed deals did," he said. "I think this one has much smoother sailing."

Both companies' shareholders must also give their blessing.

Under terms of the deal announced Thursday, NYSE Euronext shareholders would receive $33.12 a share, representing a 38% premium over the company's Wednesday closing price.

NYSE Euronext shares rallied on news of the deal Thursday, gaining $8.20, or 34%, to $32.25.

andrew.tangel@latimes.com

Times staff writer Jim Puzzanghera in Washington contributed to this report, which contains information from the Associated Press.

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