Eurex and ISE to Create Largest Transatlantic Derivatives Marketplace
01 May 2007 - 3:50AM
Business Wire
Eurex and International Securities Exchange (ISE) announced today
that they have signed a definitive agreement under which Eurex will
acquire ISE for approximately USD 2.8 billion in cash, or USD 67.50
per share. The combination will be implemented by way of a merger
and is subject to approval by the holders of a simple majority (50
percent plus one share) of ISE outstanding common stock at a
special shareholder meeting to be held as soon as practicable,
receipt of regulatory approval by the U.S. Securities and Exchange
Commission and other customary closing conditions. ISE�s Board of
Directors recommends to shareholders to vote in favor of the
transaction. The transaction will create the largest transatlantic
derivatives marketplace with significant USD and Euro product
coverage and with significant operations and revenues in both the
U.S. and Europe, the two largest markets based on market
capitalization. It will further strengthen Eurex�s position as the
leading global derivatives marketplace and will create the
undisputed market leader in individual equity, equity index and
interest rate derivatives worldwide with a combined overall trading
volume of 2.1 billion contracts in 2006. Eurex�s and ISE�s
complementary member bases and product portfolios provide
significant growth opportunities across asset classes and national
boundaries. Further upside potential stems from joint product and
business development opportunities. ISE will continue to operate as
a separate entity under SEC regulation in its current governance
structure and under the ISE brand. ISE�s full management intend to
remain in their positions. Deutsche Boerse CEO Reto Francioni said:
�This transaction further expands Deutsche Boerse�s leading
position in the fast growing global derivatives markets. The
agreement is a strategic milestone for us that will further fuel
our strong growth prospects and create significant value for
shareholders. This transaction underscores our approach to combine
strong organic growth with value creating acquisitions.� �ISE and
Eurex are partners with an excellent strategic fit. Both are
innovators of electronic trading in their time zone, sharing the
same management culture. We look forward to combining our strengths
to create a global marketplace,� said Andreas Preuss, CEO of Eurex
and a member of the executive board of Deutsche Boerse. �The
combination of ISE�s leadership position in the U.S. equity options
market with Eurex�s global position in Euro denominated fixed
income, index and equity derivatives will provide significant
benefits to our customers.� �In founding ISE almost 10 years ago,
we transformed the U.S. options market,� said David Krell,
President and CEO of ISE. �Our innovative products, electronic
trading model, technology, market structure and entrepreneurial
organization have enabled us to remain at the forefront of the
options industry. Our principle strategic objective is to further
grow our business both in terms of new products and new markets and
in partnering with Eurex, we will be able to achieve our goal. By
completing this transaction, we will be positioned to build upon
ISE�s successful business model and to solidify our future as an
integral component of the largest transatlantic derivatives
marketplace.� Gary Katz, Chief Operating Officer of ISE, added, �We
have known the management team of Eurex for some time now and have
developed a strong working relationship with them. We also share a
common vision that the exchange model is evolving toward global,
multi-asset class, electronic marketplaces and our combination will
allow both of our organizations to remain at the forefront of this
competitive industry. Our cultural fit and common vision will serve
as the basis for our successful future collaboration.� �Our
contribution to the ISE acquisition demonstrates the SWX Group�s
strategic commitment to leveraging and expanding its international
partnerships," said Peter Gomez, Chairman of the SWX Group. J�rg
Spillmann, Head of the SWX Group Executive Committee and Deputy CEO
of Eurex added: "The expansion of the combined liquidity network of
the fully electronic exchanges Eurex and ISE will further enhance
the leadership position by our joining forces.� ISE is the world�s
largest equity options exchange, providing electronic trading in
USD denominated equity options, index options and FX options. ISE�s
trading volume in equity options has grown at a 55 percent CAGR
over the last five years, outperforming the market for U.S. equity
options. With a share of 32 percent of the overall U.S. equity
options market, ISE is the market leader. ISE traded 600 million
contracts in 2006 and has 164 member firms in the U.S. ISE recently
launched a stock exchange and operates an alternative markets
platform, which will be further enhanced as part of the Eurex
group. Eurex, jointly owned by Deutsche Boerse and SWX Swiss
Exchange, has a diversified portfolio of Euro denominated fixed
income, index and equity derivatives. Since its inception in 1998
Eurex has grown to become the largest derivatives market in the
world. Eurex lists some of the world�s most actively traded
derivatives, including the global benchmark products Euro Bund
future and Dow Jones Euro STOXX 50 future. Eurex has 393 members in
Europe, the US and Asia and traded 1.53 billion contracts in 2006.
Compelling strategic rationale for the transaction The merger of
Eurex and ISE combines two of the fastest growing players in the
financial services industry, both with proven track records of
innovation. ISE pioneered electronic trading in the fast growing
U.S. equity options market and continues to show strong, positive
financial performance on the back of market leadership in the U.S.
ISE�s extensive membership base will significantly strengthen
Eurex�s position in the U.S.: 164 registered U.S. broker-dealers
are ISE members while Eurex currently has 63 U.S. members. It also
adds 600 million traded contracts to the number of contracts
originated in the U.S.; at Eurex, 112 million contracts originated
in the U.S. ISE�s product portfolio is fully complementary to that
of Eurex and with the acquisition Eurex is investing in a high
growth business while further balancing its product portfolio. The
combined group will be the largest transatlantic derivatives
marketplace with powerful distribution capabilities in two of the
world�s most important capital markets. Its wide range of both USD
and Euro denominated products will be unique in the market: the
combination will be home to the Euro zone interest rate and equity
index benchmark derivatives products and will offer options on all
major U.S. and European companies. Combining the two companies
offers huge growth opportunities through cross selling of existing
products in both markets, as well as through the introduction of
new products in the future. The combination will create significant
value for Deutsche Boerse shareholders and SWX Swiss Exchange.
Total estimated pre-tax synergies of USD 50 million p.a. have
already been quantified. 50% of the total synergies will be
achieved in 2010 and full run rate synergies in 2012. Of the total
some USD 15 million p.a. are attributable to efficiency gains. An
additional approximately USD 35 million p.a. come from revenue
synergies mainly through the cross selling of existing products.
Both partners strongly believe that the joint product development
experience and capability will result in further growth
opportunities across asset classes and geographies. This additional
potential is not included in the total synergies. The combination
is well positioned to further expand its global network of
partners. It will feature the broadest geographic and product
coverage, strong functional and service knowledge and cutting-edge
technology. Transaction structure In the merger, Eurex will pay ISE
shareholders USD 67.50 in cash for each of their shares of ISE
stock. The combination will be implemented by way of a merger
between ISE and a subsidiary of U.S. Exchange Holdings Inc., itself
a Eurex subsidiary. The transaction is subject to approval by the
holders of a simple majority (50 percent plus one share) of ISE
outstanding common stock at a special shareholder meeting to be
held as soon as practicable, receipt of regulatory approval by the
U.S. Securities and Exchange Commission and other customary closing
conditions. The partners expect the transaction to close in
Q4/2007. ISE expects to continue to pay a regular quarterly cash
dividend in the pre-closing period. Eurex will be the acquiring
entity with its two parent companies Deutsche Boerse AG and SWX
Swiss Exchange providing the necessary financing. Deutsche Boerse
will contribute 85% of the total purchase price and SWX 15% thereby
remaining in line with the economic interests that both companies
have in Eurex. Deutsche Boerse is planning to finance its share of
the purchase price initially through a bridge loan facility of
approximately EUR 1.5 billion (approx. USD 2 billion) and cash on
hand at the time of closing. This bridge loan will be taken out
through retention of future earnings of approximately EUR 200
million (approx. USD 270 million) and a mix of senior and hybrid
debt (approximately EUR 1.3 billion, approx. USD 1.77 billion).
This long term financing structure assumes implementation of the
ringfencing structure currently under development as reported at
the annual results conference in February 2007. With this structure
Deutsche Boerse moves from a net cash to a net debt position
thereby reducing its cost of capital and thus increasing its
capital efficiency. Deutsche Boerse also plans to continue with its
progressive dividend policy. Share buy backs under its current
capital management program will start again once financial ratios
are restored. Editor's Note: Eurex and ISE will hold a joint
briefing for the media Tuesday, 1 May 2007 8:30 am - 10:00 am (EST)
Location: Waldorf Astoria Hotel 301 Park Avenue New York, NY 10022
Empire Room For journalists not able to attend in person, we have
arranged for a teleconference line. Teleconference call: +1-800-7
98 28 01 (USA) +1-617-6 14 62 05 (International) Passcode 18 10 86
81 Presentation materials for the briefing will be available in the
investor relations sections at www.deutsche-boerse.com and
www.iseoptions.com. A replay of the teleconference call will be
available from 10:30 am on May 1, 2007 until May 8, 2007 and can be
accessed by calling +1-888-286-8010 (USA) or +1-617-801-6888
(International) and providing the participant passcode 38291262.
Eurex and ISE will hold a conference call for investors/analysts
Tuesday, 1 May 2007 10:30 am - 12:00 am (EST) Teleconference call:
800-2 37 97 52 (USA) +1-617-8 47 87 06 (International) Passcode 82
77 41 37 Presentation materials for the conference call will be
available in the investor relations sections at
www.deutsche-boerse.com and www.iseoptions.com. A replay of the
teleconference call will be available from 12:30 pm on May 1, 2007
until May 8, 2007 and can be accessed by calling +1-888-286-8010
(USA) or +1-617-801-6888 (International) and providing the
participant passcode 42770087. About Deutsche Boerse Deutsche
Boerse, a member of the German blue chip index DAX� and the largest
exchange organization worldwide, is a leading service provider to
the global securities industry with products and services for
issuers, investors, intermediaries and data vendors. The Group
covers the entire securities process chain from trading over
clearing all the way to settlement and custody. Deutsche Boerse
Group is also a provider of IT solutions and an insourcing partner
for the global securities industry as well as a leading provider of
market data and analytics. Within the Group, Deutsche Boerse AG
functions as the operating company for the various markets and as
the holding company for Deutsche Boerse Systems AG, the Group's IT
arm as well as Clearstream International S.A., the settlement and
custody operation. The Group�s major markets are the Frankfurt
Stock Exchange and the world�s leading derivatives exchange Eurex.
The company�s global network connects over 2,000 banks, securities
trading firms and clearing and settlement firms worldwide to these
markets. Deutsche Boerse AG is listed on the Frankfurt Stock
Exchange and has an international shareholder base. The group
employs around 3.000 staff in its global headquarters in Frankfurt
as well as in Chicago, London, Luxembourg and Zurich; the Group
maintains representative offices in the major financial centers
worldwide. About Eurex Eurex, jointly owned and operated by
Deutsche Boerse AG and SWX Swiss Exchange, is the world's largest
derivatives exchange. Eurex offers a broad range of international
benchmark products and operates the most liquid fixed income
derivatives markets in the world. With market participants
connected from locations all over the world, trading volume at
Eurex reached 1.53 billion contracts in 2006. In addition to
operating a fully electronic trading platform, Eurex provides an
automated and integrated joint clearing house, Eurex Clearing.
Together with international trading houses, Eurex also operates the
electronic network (ECN) Eurex Bonds, an over-the-counter market
for integrated cash and derivatives trading in German Federal bonds
and Eurex Repo, the electronic trading solution for sale and
repurchase agreements. Together with Man Group plc, Eurex owns U.S.
Futures Exchange, aimed at expand the derivatives market by serving
as a product incubator and innovator to create new listed products.
About ISE International Securities Exchange Holdings, Inc. (NYSE:
ISE), through its subsidiaries, operates a family of innovative
securities markets. ISE is founded on the principle that technology
and competition create better, more efficient markets for investors
and consists of an options exchange, a stock exchange and an
alternative markets platform. ISE continually enhances its trading
systems and develops new products to provide investors with the
best marketplace and investment tools to trade smarter. ISE
developed a unique market structure for advanced screen-based
trading systems and in May 2000 launched the first fully electronic
US options exchange. Currently, ISE operates the largest U.S.
equity options exchange and is among the leading options exchanges
in the world. ISE offers index options, including a portfolio of
proprietary index products, and enhanced market data products for
sophisticated investors. ISE FX Options� launched in the second
quarter of 2007. ISE Stock Exchange, launched in September 2006
with strategic partners, includes an innovative MidPoint Match�
platform which offers investors continuous price improvement.
MidPoint Match was integrated with a fully displayed Best Bid Offer
market in the fourth quarter of 2006. ISE�s alternative markets
business currently consists of an events market trading platform
known as Longitude. Longitude�s patented and proprietary technology
provides a unique parimutuel structure for derivatives auctions
which results in greater trading and pricing flexibility for market
participants. About SWX Swiss Exchange The SWX Swiss Exchange, a
part of the SWX Group (a provider of securities exchange services),
is one of the world�s leading and most technologically advanced
securities exchanges. The fully automated trading, clearing and
settlement system remains unique in the world. At the click of a
mouse, an order is executed, cleared, paid for and confirmed � all
within the space of 2 minutes, with an average of 2.3 million
transactions each trading day. The SWX Swiss Exchange offers its
customers first-rate securities exchange services and a broad range
of investment products. www.swx.com LEGAL DISCLAIMER Proxy
Statement ISE plans to file with the SEC and mail to its
stockholders a Proxy Statement in connection with a special meeting
of stockholders to be called to approve the merger. The Proxy
Statement will contain important information about ISE, the
transaction and related matters. Investors and security holders are
urged to read the Proxy Statement carefully when it is available.
Investors and security holders will be able to obtain free copies
of the Proxy Statement and other documents filed with the SEC by
ISE through the web site maintained by the SEC at www.sec.gov. In
addition, investors and security holders will be able to obtain
free copies of the Proxy Statement from ISE by contacting Thomas
Gibbons of ISE at 60 Broad Street, New York, NY 10004, Telephone
(212)�897-8167. Participants in the Solicitation ISE and its
executive officers and directors may be deemed, under SEC rules, to
be participants in the solicitation of proxies from ISE's
stockholders with respect to the proposed merger. Information
regarding the executive officers and directors of ISE is included
in ISE's definitive Proxy Statement for ISE's 2007 annual meeting,
which was filed with the SEC on April�3,�2007. More detailed
information regarding the identity of potential participants, and
their direct or indirect interests, by securities, holdings or
otherwise, will be set forth in the Proxy Statement to be filed by
ISE with the SEC in connection with the proposed merger.
Forward-looking Statements Certain matters discussed in this press
release are "forward looking statements" intended to qualify for
the safe harbor from liability established by the Private
Securities Litigation Reform Act of 1995. These statements relate
to future events or future financial performance, and involve known
and unknown risks, uncertainties and other factors that may cause
the actual results, levels of activity, performance or
achievements, to be materially different from those contemplated by
the forward looking statements. For example, (i)�ISE may be unable
to obtain the stockholder approval required for the merger,
(ii)�the regulatory approvals, including SEC approval, required for
the merger may not be obtained and (iii)�conditions to the closing
of the merger may not be satisfied. In addition, additional factors
that could affect ISE's results, levels of activity, performance or
achievements and cause them to materially differ from those
contained in the forward looking statements can be found in ISE's
filings with the Securities and Exchange Commission, including
ISE's annual report on Form�10-K, current reports on Form�8-K and
quarterly reports on Form�10-Q. ISE undertakes no ongoing
obligation, other than that imposed by law, to update these
statements.
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