NYSE sold in $8.2 billion deal

Ownership to shift to competitor IntercontinentalExchange

Specialist Wingszi Chiang directs trading Thursday at her post on the floor of the New York Stock Exchange.
Specialist Wingszi Chiang directs trading Thursday at her post on the floor of the New York Stock Exchange.

— The owner of the 220-year-old New York Stock Exchange on Thursday agreed to an $8.2 billion deal that would give control to upstart competitor IntercontinentalExchange.

NYSE Euronext said it would sell itself for about $33.12 a share in cash and stock. The combined company would have headquarters in both IntercontinentalExchange’s home of Atlanta and in New York.

Both boards approved the proposal and the companies expect to complete the transaction in the second half of 2013.

The New York Stock Exchange dates to 1792, when 24 brokers and merchants traded stocks under a buttonwood tree on Wall Street. Most trading is now done on computers that match thousands of orders a second.

The deal signals a revival of consolidation in the world of market operators and would be an unusual success. More than $32 billion in proposed exchange takeovers have failed since October 2010.

IntercontinentalExchange, a 12-year-old energy and commodity futures bourse, worked with Nasdaq OMX Group in an $11 billion hostile bid for NYSE Euronext, but that offer was blocked last year by the Justice Department.

And NYSE Euronext had sought to combine with Deutsche Boerse, creating a global giant in the trading of derivatives. That merger was stymied by European antitrust regulators.

Thursday’s deal is expected to run into fewer problems. Intercontinental-Exchange and NYSE Euronext have little overlap: the former focuses on the trading of commodities such as energy products, the latter on stocks and derivatives.

While the New York Stock Exchange, with its ceremonial opening bell and floor traders, has been the public image of a stock market for two centuries, it is NYSE Euronext’s businesses in the over-the-counter trading of derivatives — including the Liffe market in London — that is the main attraction in the merger talks.

Thomas Caldwell, chairman of Caldwell Securities in Toronto and a shareholder in NYSE Euronext said the jewel of the deal is the Liffe, a futures exchange founded in London.

“The original New York Stock Exchange, it’s got a brand name, it’s got recognition, but as a business it’s a very small part of this thing,” Caldwell said.

Peter Lenardos, an exchange analyst at RBC Capital Markets in London, said Thursday that the reason for the deal is to cut costs in an industry dealing with reduced volumes “and an increased regulatory burden.” The transaction is also “for [IntercontinentalExchange] to gain access to European derivatives.”

The stature of the New York exchange has been dwindling for years because of intensifying competition, a harsher regulatory environment and the declining popularity of stocks as an investment, Caldwell said.

Three decades ago, the floor of the New York exchange was full of bustling traders. Today, one of its largest booths belongs to the cable news channel CNBC, which broadcasts there for most of the business day.

Shareholders of NYSE Euronext would own about 36 percent of the combined company if the deal meets government approval. NYSE Group and Euronext merged in 2007.

IntercontinentalExchange’s chief executive, Jeffrey C. Sprecher, would keep that role in the newly enlarged market operator. Duncan L. Niederauer, the NYSE Euronext chief, would be president.

IntercontinentalExchange was established in May 2000. Its founding shareholders represented some of the world’s largest energy companies and financial institutions, according to the company’s most recent annual report.

The exchange’s stated mission was to transform the energy futures market by providing more transparency.

Analysts forecast that IntercontinentalExchange’s revenue will reach $1.4 billion this year, according to FactSet, a provider of financial data. That’s more than double the $574 million of revenue that the company reported in 2007.

“We believe the combined company will be better positioned to compete and serve customers across a broad range of asset classes by uniting our global brands, expertise and infrastructure,” Sprecher said.

Peter Costa, president of Empire Executions Inc., a boutique trading firm on the floor of the New York Stock Exchange, and a governor with the exchange, said both companies knew the value of the exchange’s brand and would try to preserve it.

“The trading floor, while iconic, may seem to be an anachronism in this high-speed world of electronic this and electronic that, but it still survives because the customers that use the trading floor still see the added value of having some human intervention,” Costa said.

Costa, also a New York Stock Exchange stockholder, said that while the premium that IntercontinentalExchange was paying was not as high as he would have liked, it was “still fairly generous.”

The exchange’s stock jumped $8.20, or 34 percent, to close Thursday at $32.25 in heavy trading. IntercontinentalExchange’s stock rose $1.79 to close at $130.10.

Information for this article was contributed by Michael J. De La Merced of The New York Times, Steve Rothwell of The Associated Press, and Nina Mehta and Nandini Sukumar of Bloomberg News.

Business, Pages 28 on 12/21/2012

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