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German exchange to buy ISE for $2.8B
2007-04-30
With stock options trading now one of the world's fastest growing markets, Deutsche Boerse AG's pact to buy International Securities Exchange Holdings Inc. for $2.8 billion could lead to more deals -- and perhaps a rival bid for the second-largest U.S. options exchange. The German stock exchange on Monday announced the $2.8 billion acquisition of New York-based ISE, a deal that will create the world's top options market, rivaling U.S. players like the Chicago Board Options Exchange and Chicago Mercantile Exchange. With ISE investors getting an almost 50 percent premium for their shares, the offer was viewed on Wall Street as being one of the most aggressive made during a period of growing consolidation among global exchanges. It also ups the ante for NYSE Euronext Inc. and Nasdaq Stock Market Inc., both keen on expanding farther into options trading. "It was somewhat out of character for Deutsche Boerse to be so aggressive, but it shows how important this is for them," said Richard Herr, an analyst with Keefe, Bruyette & Woods. "But, I can't totally rule out a competing bid." Deutsche Boerse Chief Executive Reto Francioni has been under pressure to strike an international acquisition after his company's efforts to buy Paris-based stock exchange operator Euronext were foiled by the New York Stock Exchange. The ISE's two top executives -- co-founders David Krell and Gary Katz -- used to run the Big Board's options business. They formed ISE when former NYSE Chairman and CEO Dick Grasso showed little interest in building up an options business. The NYSE would not comment on the Deutsche Boerse-ISE deal, but analysts were curious to see whether NYSE Euronext CEO John Thain would try to upset the agreement. He wants to expand the NYSE's options platform -- and has not ruled out doing so by acquisition. And, already saddled with absorbing Euronext, a deal with ISE would be far simpler since the options exchange's headquarters is around the corner from the NYSE. It would also meld with the NYSE's London-based Liffe options exchange, acquired as part of the Euronext deal. Regardless of whether Thain makes a competing bid, the Deutsche Boerse's move into America was seen as a catalyst for more deals. It could force others to quickly come forward with their own agreements. "What this does is give any other deals some urgency. If there are two parties out there haggling over price, they tend to settle pretty quickly when another deal happens," said David Easthope, an analyst with business consulting firm Celent LLC. Intercontinental Exchange Inc. has bid $9.6 billion for the Chicago Board of Trade, which is also considering a rival $8.2 billion offer by the Chicago Mercantile Exchange. The Philadelphia Stock Exchange, the third-largest U.S. options market, is said to be in talks with rivals that include the Nasdaq. The London Stock Exchange fought off several bids, including a hostile one from the Nasdaq, which is now its largest shareholder. Robert Greifeld, chief executive of the all-electronic Nasdaq, said he wants to expand the company's options trading this year. The exchange plans to start trading options more heavily once the Securities and Exchange Commissions decides whether to expand a program that would convert decimal trading in options into penny increments. "Deutsche Boerse competitors in the U.S. certainly need to stand up and take notice, especially given the very public statements by management of both the Nasdaq and NYSE Euronext that left no doubt as to how important derivatives will be to their future success," said Andy Nybo, a senior analyst with consulting firm TABB Group. However, it was unlikely Greifeld would overpay to buy ISE. He has pledged to shareholders the Nasdaq will not make an acquisition that was too expensive, or would not almost immediately boost earnings. A spokeswoman for the Nasdaq would not comment. The Deutsche Boerse statement said ISE shareholders would get $67.50 per share for their stock. That represents a nearly 48 percent premium over Friday's closing price. Deutsche Boerse said the deal would have to win a majority at an extraordinary ISE shareholders meeting, which it said would take place as soon as possible, and would also require approval by the U.S. Securities and Exchange Commission. The companies will hold a news conference on Tuesday to unveil details of the acquisition. _____ AP Business Writer David McHugh in Berlin contributed to this story.
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