CME CME Group Inc

   (FROM THE WALL STREET JOURNAL 3/2/16) 
   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 merger with Deutsche Boerse AG.

ICE, the owner of the New York Stock Exchange, said in a statement Tuesday that it was studying a bid for 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, also is considering an approach for LSE, according to a person familiar with the matter.

The news comes a week after LSE said it was in advanced talks with Deutsche Boerse 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 be a problem for Deutsche Boerse, and potentially hinder any deal. "The price that Deutsche Boerse will have to pay for LSE will likely go up," said Richard Repetto, an analyst for Sandler O'Neill + Partners LP.

The person familiar with the talks said that both ICE and CME, should they go ahead, would likely place all-cash offers for LSE because both have substantial financial firepower. That could put either of them in the pole position because investors typically prefer cash over a stake in a combined entity.

A spokeswoman for CME declined to comment. ICE declined to comment beyond its statement.

Two people familiar with Deutsche Boerse's plan said improving the terms for LSE could be tough for the German company because the terms already are favorable for LSE investors.

A 2005 takeover bid for LSE by Deutsche Boerse was hurt in part because of a rival bidder, noted Citigroup Inc. analysts in a report released Tuesday. Deutsche Boerse's balance sheet is stretched, and a renegotiation might mean a higher proportion of the combined equity going to LSE or the need for Deutsche Boerse to raise equity, the report said.

Deutsche Boerse 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 Boerse would gain a leading cash equities market and clearing and settlement business from LSE.

LSE shares rose 7% on Tuesday. Deutsche Boerse gained 0.9%.

The biggest challenge facing ICE or CME, analysts say, 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.

The exchange industry has a history of failed attempts at consolidation. Deals have been struck again and again, only to unravel because of shareholder resistance or antitrust concerns. LSE and Deutsche Boerse, for example, have been in on-again, off-again talks since at least 2000. Deutsche Boerse 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 Boerse, regulators shot it down over fear of creating a monopoly.

In addition to Deutsche Boerse, other bidders for LSE have 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 Boerse continue to progress. Deutsche Boerse also said it noted ICE's statement and would closely monitor future developments, while talks with LSE continue.

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Ian Walker and James Rundle contributed to this article.

(See related article: "The Real Reason ICE Covets the LSE" -- WSJ Mar. 2, 2016)

(END) Dow Jones Newswires

March 02, 2016 02:47 ET (07:47 GMT)

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