By Eyk Henning, Giles Turner and Lisa Beilfuss
New York Stock Exchange operator Intercontinental Exchange Inc.
said Wednesday that it doesn't intend to make an offer for London
Stock Exchange Group PLC, helping to pave the way for the U.K.
exchange's merger with Germany's Deutsche Börse.
ICE said in a short statement in conjunction with its earnings
report that it couldn't confirm the potential market and
shareholder benefits of a deal and therefore wouldn't make an
offer.
The company had said in March that it was considering a bid for
LSE after the U.K. firm agreed to combine with Deutsche Börse in a
deal that would establish Europe's biggest stock-exchange
operator.
The all-share agreement between Deutsche Börse and LSE would
form a combined company with a market value of about $30 billion,
and would be 45.6%-owned by LSE shareholders and the remainder by
Deutsche Börse shareholders.
That pact was thought to set the stage for a potential bidding
war, as U.S. competitors such as Atlanta-based ICE and CME Group
Inc. considered their next moves.
LSE shares declined 5.1% as hopes for a counter offer were
dashed, while Deutsche Börse rose 7.2% and ICE gained 6.8%. CME
slipped 0.3%.
For ICE, "we believe this announcement removes a major overhang
on the stock and combined with a solid quarter and outlook we
anticipate the shares to react favorably," analysts from Jefferies
Group LLC said in a first reaction.
Analysts and industry executives have said that among the
attractive features of LSE, the real prize is its majority stake in
a company called LCH.Clearnet Group Ltd., a so-called clearinghouse
that plays an important role in the market for global interest-rate
swaps, bonds and other instruments.
ICE in particular has made the business of clearing a pillar of
its global constellation of futures and stock exchanges. Its
interest in LSE's clearing business was in some ways similar to its
$8.2 billion acquisition of the owner of the New York Stock
Exchange in 2013. In that deal, ICE's primary target was the London
International Financial Futures and Options Exchange, known as
Liffe. The NYSE was viewed as a problematic asset in need of
significant cost cuts.
The deal between Deutsche Börse and LSE still faces formidable
obstacles such as the U.K.'s referendum on its membership in the
European Union on June 23.
People familiar with the matter said German authorities likely
wouldn't approve the deal if Deutsche Börse were controlled by a
holding company located and supervised outside the EU. That is
currently the plan, however.
Deutsche Börse CEO Carsten Kengeter said in Frankfurt Tuesday
that he is in talks with domestic and EU regulators, which implies
the offer documents for Germany's watchdog BaFin haven't been
submitted yet.
That is significant because it indicates that the tender offer
the U.K. holding company would launch for Deutsche Börse will
likely last into summer and will end after the U.K.'s
referendum.
By logic, that also means LSE will hold its scheme of
arrangement -- the shareholder meeting decisive for the merger --
after the referendum.
While the leaders of both firms have stressed the deal is a good
one even in the event the U.K. leave the EU, shareholders might
think otherwise.
Some Deutsche Börse shareholders privately argue that a U.K.
exit would see the British Pound drop further, making the exchange
ratio look worse for them. Some say trading volumes at LSE might
drop.
Meanwhile, ICE's announcement came as it reported higher
earnings and revenue for its first quarter, helped by a doubling of
data-service revenue and benefits from busier markets.
Trading volume picked up in the quarter, driving transaction
fees higher. Like some of its rivals, volume snapped back for ICE
after a rough end to 2015. CME similarly reported increased
earnings for the first quarter thanks in part to renewed trading
interest after global economic concerns spooked traders and
investors late last year. For ICE, trading volume rose 9.6% during
the quarter, pushing transaction and clearing fees up 11% to $929
million.
ICE has been snapping up firms in a bid to grow its footprint
and broaden its revenue base. ICE last year bought Interactive Data
Corp., giving it hard-to-get pricing data on corporate bonds, as
well as London-based energy-trading venue Trayport.
ICE's acquisition of IDC has been helping to propel results, and
first-quarter data and services revenue rose to $477 million from
$206 million a year earlier -- now representing more than 30% of
the company's top line.
In all, profit grew to $369 million, or $3.08 a share, up from
$315 million, or $2.80 a share, a year earlier. Excluding
merger-related costs, among other items, earnings rose to $3.68 a
share from $3.06.
Revenue jumped 32% to $1.55 billion. Analysts projected $3.65 in
adjusted earnings per share on $1.16 billion in sales, according to
Thomson Reuters.
--Bradley Hope contributed to this article.
Write to Eyk Henning at eyk.henning@wsj.com, Giles Turner at
giles.turner@wsj.com and Lisa Beilfuss at lisa.beilfuss@wsj.com
(END) Dow Jones Newswires
May 04, 2016 10:26 ET (14:26 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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