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Cutting losses

20 December 2012 By Antony Currie

At least Duncan Niederauer isn’t blind to the inevitable. The NYSE Euronext chief executive has agreed to sell the Big Board to IntercontinentalExchange for $8.2 billion. While that’s a 37 percent premium to Wednesday’s closing price, it’s a quarter less than ICE offered in its joint bid with Nasdaq OMX last year. Niederauer preferred to pursue a tie-up with Deutsche Boerse, but that fell apart. With NYSE’s shares lagging the exchange sector since then, capitulation was his best option.

He conceded in a conference call on Thursday morning that NYSE had failed to deliver value for shareholders, whether because of the environment or as a result of poor management. As of Wednesday’s close, NYSE’s stock had fallen 30 percent since the day before ICE and Nasdaq launched their hostile offer in April last year – though Niederauer has paid out some cash in that time, too. Both ICE and Nasdaq have pretty much retained their value, while even Deutsche Boerse’s stock is only down about 15 percent.

That suggests it’s more a matter of NYSE’s execution, or perhaps its overall direction, than market conditions. In taking ICE’s offer, Niederauer is accepting he may have to unwind the New York company’s grand strategy, too: Atlanta-based ICE has raised the prospect of separately listing its target’s continental European bourses next year, especially if regulators push for it.

Despite not starting from a position of strength, the NYSE boss has managed to craft a decent deal for his suffering shareholders – it almost matches the value of their holdings before the company’s spate of abortive dealmaking last year. The transaction stacks up financially for ICE, too. New annual cost savings of $300 million, on top of $150 million NYSE was already chasing, are currently worth perhaps $2 billion to investors in post-tax, present-value terms. That falls only just shy of the premium ICE is paying to Wednesday’s closing price, and more than covers the smaller 27 percent premium to NYSE’s average share price this year.

There’s industrial logic, too, with or without the European exchanges. The commodity futures-focused ICE finally nabs London-based derivatives exchange Liffe. Meanwhile, NYSE can fold its fledgling clearing business into its new owner’s established operation, which ought to be a money-spinner as regulation forces more derivatives trades into clearing houses.

NYSE shareholders may wish they could still collect the extra $3 billion that rival suitors were offering last year. But Niederauer knew it was time to take an ICE-cold shower, and at least they have a deal before things worsen.


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