NEW YORK, NY--(Marketwire - Dec 21, 2012) - IntercontinentalExchange Inc. (NYSE: ICE) made headlines around the world recently, as its $8.2 billion bid to acquire the NYSE Euronext Inc. (NYSE: NYX) has been approved by both boards. It is currently set to conclude some time next year but also still needs the approval of a number of securities regulators along with antitrust officials in Portugal, the UK, and Spain. The massive deal will have industry-wide ramifications and begs a series of questions.
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Why did the deal happen now? Cutting costs appears to be a major driver for the newly completed deal. Nearly all exchanges have been battling similar headwinds for the past year. Reduced volumes and increased pressure from regulatory changes have made it increasingly difficult to widen margins. The newly formed giant will alleviate much of the pressure applied by these factors.
Where was each company going prior to the deal? The direction each company was heading in also played a role in the deal being completed. The longstanding NYSE Euronext has steadfastly hung onto ailing and volatile equities markets while ICE is tapped into the burgeoning derivatives business which many deem to be the future of finance.
What will the deal mean for shareholders? According to the terms of the deal, NYSE Euronext shareholders have three options. A released statement says they can opt for $33.12 in cash per share, .2581 shares of ICE or a combination of $11.27 in cash and .1703 shares. Shortly following the completion of the deal, NYSE Euronext shares climbed 34% to close at $32.25 while ICE improved by a more modest 1.4%.
Will the Big Board and trading floor change? ICE has promised both officials at the NYSE and New York state officials that it will keep the floor as it is, although one must wonder for how long. The shift to faster electronic systems and embracing of new technologies propelled the 12-year-old ICE to its current vaunted status. How long will traditional floor trading really last?
Who's the winner? This is much more difficult to determine as the deal looks to be almost mutually beneficial. Many are giving a slight edge to ICE though because it will now have access to NYSE's futures market, the London International Futures Exchange, known as Liffe. NYSE's equities business could be strengthened by the deal.
Who may be negatively impacted? The Chicago based CME Group controls roughly 90% of the U.S futures market, and will likely have a tougher time maintaining this figure in the wake of the takeover. The newly formed exchange giant could be a much more looming competitive threat. Because of this, many suspect other exchanges will respond in the coming months with deals of their own to better combat this new threat.
What's next? The industry's focus will likely shift away from the deal quickly as more provisions of the Dodd-Frank Financial Reform Act are set to go into effect. Specifically, the law will require derivatives trades to pass through clearinghouses. These clearinghouses will hold collateral from both sides of a trade in a change aimed at reducing the risk of harming broader financial systems.
Moving forward, the deal currently looks to be a plus for all parties involved. Soon the focus will likely move back towards handling regulatory changes and what direction the U.S. economy will move in. Broader markets did improve this week as optimism over a fiscal cliff compromise increased even though President Obama vowed to veto a recent proposal from Republicans. Resolution of the fiscal cliff crisis will be pivotal for the financial sector to resume focusing on growth and less on preparing for an uncertain future.
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