One of the surprise corporate deals at the
end of last year was ICE purchase of the NYSE Euronext. Most surprising because
on the face of it this deal looks unbalanced and does not perfectly fit into
eithers business. So why the deal?
The only time we find deals of this type is
when there is an ultimate plan and business wise and economically that normally
entails a break up and sell offs. It is of course all conjecture and nothing has
been said or indicated that break up plans are in process, but such situations
provide ample ammunition for speculation on what might be afoot.
So let's play a speculative game and see if
we can't build a financial and economic plan for ICE to make a profit and
benefit their business prospects long term.
What if ICE sells NYSE Euronext equities
business to the market? Would they establish NYSE Euronext as a standalone
business and be effectively a management buyout or sell it into the global stock
Of the Stock Exchanges, which would be the
most likely? Deutsche Börse, TMX and the London Stock Exchange would be my front
runners, with a Far East Exchange wishing to get into the global stock exchange
business being second, along with any of the Arab states.
I do not believe that the Deutsche Börse has
the existing structure or capability to integrate NYSE Euronext into their
vertical structure. TMX has far too many internal market issues, which managed
to scupper the merger with the London Stock Exchange last year. The Arabs are
unlikely to be able to incorporate much of the needed businesses of a modern
stock exchange under their religious laws and the Chinese might see this type of
deal as being too early in the financial revolution they are undergoing. So the
London Stock Exchange looks to me to be the favourite, for these
The London Stock Exchange has purchased a
major stake in LCH and is moving back into the post-trade business. NYSE
Euronext has been spending huge amounts building their internal clearing house
in part because of the London Stock Exchange /LCH deal. LSE buying the NYSE
Euronext equities business would stop the internal clearing house development
and keep the business in LCH. This immediately saves money on the NYSE Euronext
balance sheet and increases the value of the LSE purchase of LCH.
The potential of a joined up NYSE Euronext
and London Stock Exchange would create the world's largest international
equities market and attract massive interest in listings and of course
investment dealing and electronic trading operations. Liquidity would be
enormously enhanced and the cost of transacting could plummet. The potential to
cross-subsidise and cross-collateralise would equally be of tremendous benefit
to international investing and trading operations.
There could also be synergies introduced on
regulatory reporting and cross Atlantic harmony of compliance. This would surely
attract the attention and I am sure the support of governments, as a Pan
Atlantic Exchange of global dimensions could have long-term real economic
This is of course just speculation on my
part, but I seem to have a gut feeling about some things. So is this a great
idea or what?