NYSE Owner ICE, CME Group Mull Bids for LSE -- 5th Update
02 March 2016 - 2:14AM
Dow Jones News
By Eyk Henning and Shayndi Raice
Intercontinental Exchange Inc. and CME Group Inc. are
considering bids for London Stock Exchange Group PLC, potentially
gate-crashing the British company's proposed $28 billion merger
with Deutsche Börse AG.
ICE, the owner of the New York Stock Exchange, said in a
statement Tuesday it was studying a bid for the LSE, but had yet to
make a decision and hadn't made any approach to the British
company.
CME, the operator of the Chicago Mercantile Exchange, is also
considering an approach for LSE, according to a person familiar
with the matter.
The news comes a week after the LSE said it was in advanced
talks with Deutsche Börse about a so-called merger of equals that
would value the combined company at about $28 billion based on
their closing stock prices the day before the announcement.
A bid from either ICE or CME would be one way to stop the
formation of a leading European exchange that could pose a
formidable threat to the two leading U.S. exchanges.
A bidding war could pose a problem for Deutsche Börse, and
potentially pose a risk to any deal.
"The price that Deutsche Börse will have to pay for LSE will
likely go up," said Richard Repetto, an analyst for Sandler O'Neill
+ Partners LP.
The 2005 takeover of LSE by Deutsche Börse was hurt in part
because of a rival bidder, noted Citigroup Inc. analysts in a
report released Tuesday. Deutsche Börse's balance sheet is already
stretched, and a renegotiation might mean a higher proportion of
the combined equity going to LSE or an equity raise, the report
said.
Deutsche Börse and LSE alone aren't big or diverse enough to
truly challenge their U.S. rivals. But together, they could control
not just stock markets but derivative markets as well, which
include instruments such as futures and options that command higher
margins and are harder for rivals to replicate. A deal would give
LSE a large derivatives trading business, while Deutsche Börse
would gain a leading cash market and post-trading business from its
U.K. counterpart.
Shares in the LSE rose more than 7% in response to a potential
bidding war for the company. Deutsche Börse traded 0.4% higher.
The biggest challenge facing ICE or CME, say analysts, is the
regulatory environment. CME and ICE, the largest and second-largest
exchanges in the world by revenue, could be thwarted by regulators
if they attempted to take over the fourth largest exchange by
revenue, LSE, according to Burton-Taylor International Consulting
LLC.
"Any participant entering the game can anticipate substantial
scrutiny and attention from authorities," said Steve Woodyatt,
chief executive of Object Trading, a market-access provider.
The exchange industry has a history of failed attempts at
consolidation. Deals were struck over and over, only to unravel due
to shareholder resistance or antitrust concerns. LSE and Deutsche
Börse, for example, have been in on-again off-again talks since at
least 2000. Deutsche Börse also held talks with Euronext, which was
ultimately bought by the New York Stock Exchange. When NYSE
Euronext then tried to do a deal with Deutsche Börse, regulators
shot it down over fear of creating a monopoly.
In addition to Deutsche Börse, other bidders for LSE included OM
Gruppen in 2000, Macquarie Bank Ltd. in 2005, Nasdaq Inc. in 2006
and Canadian exchange operator TMX Group in 2011.
LSE said it noted ICE's announcement and confirmed it hasn't
received any proposal from the company, adding that talks with
Deutsche Börse continue to progress. Deutsche Börse also said it
noted ICE's statement and would closely monitor future
developments, while talks with LSE continue.
While CME hasn't yet decided whether to proceed with a bid, it
appears to have more financial firepower and fewer antitrust issues
than ICE, the person familiar with the situation said.
LSE remains committed to a friendly deal with Deutsche Börse but
it would have to consider potential rival bids by ICE or CME, the
person added.
A spokeswoman for CME declined to comment.
Talks between Deutsche Börse and the LSE represent at least the
third attempt by the companies to combine. The deal would create
the largest exchange in Europe and a formidable rival to the big
U.S. marketplaces.
The companies said Friday the combined group would be domiciled
in London with head offices in both London and Frankfurt.
ICE has until 1600 GMT on March 29 to either make an offer or
withdraw under U.K. takeover rules. The deadline for the LSE and
Deutsche Börse merger is 1700 GMT on March 22.
Ian Walker and James Rundle contributed to this article.
Write to Eyk Henning at eyk.henning@wsj.com and Shayndi Raice at
shayndi.raice@wsj.com
(END) Dow Jones Newswires
March 01, 2016 09:59 ET (14:59 GMT)
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