The IntercontinentalExchange (ICE), a rising star electronic energy exchange, announced late Thursday it has entered into a definitive merger agreement to acquire the New York Board of Trade (NYBOT), a more than 100-year-old open outcry exchange for sugar, coffee, cocoa, cotton and other commodities and financial products, for $1 billion. The transaction, which is expected to close in the first half of next year, will deliver to NYBOT 10.297 million shares of ICE common stock and $400 million in cash.
Upon consummation, NYBOT will become a wholly owned subsidiary of Atlanta-based ICE. Major features of the deal are that rapidly growing ICE will get a critically needed and lucrative clearing operation, NYBOT subsidiary New York Clearing Corp., while on the other side, the 136 year-old floor-based exchange will be able to offer electronic trading.
The breakup fee for a default on the agreement is $39 million. The merger must be approved by a two-thirds vote of NYBOT members and various regulatory agencies. ICE plans to finance the transaction with cash on hand and some borrowing. Citing $50 million in total pretax synergies, ICE expects the transaction to be accretive within 12 to 18 months of closing.
Executives of the two companies stressed the good fit of the merged companies in a conference call Friday morning. NYBOT Chairman Frederick W. Schoenhut said without the merger the two companies were "incomplete." Going forward they will be able to fully compete with what he said was the only complete exchange, the Chicago Mercantile Exchange. There is no plan to phase out floor trading, Schoenhut and ICE Chairman Jeffrey Sprecher said. Rather, they would be able to offer additional side-by-side or round-the-clock electronic trading for NYBOT's products.
Sprecher, who said he first approached NYBOT 18 months ago, stressed the global nature of both companies' products. NYBOT makes the market around the world for sugar and ICE's premier oil products are traded globally. The ICE platform also supports natural gas, power and emissions trading, including futures and OTC products.
The New York firm, which started in 1870 as The Cotton Exchange, is anxious to trade some of its currency products electronically to better serve its global clients. Those currency products are expected to go up on the ICE platform even before the merger is completed under a licensing agreement to be worked out between the two parties.
Schoenhut said NYBOT had considered other merger candidates in an open process, but "this agreement with ICE is the best fit for our exchange and our long-term goals. He noted the two companies had an overlap in customers and "cultural synergies." He praised ICE's "forward-thinking management, with the intelligence and the vision to make a very successful business." ICE, which went public in an IPO last November, has been reporting stunning financial results this year. The company's OTC trading has gained 85% year to year and futures trading is up 115%, Sprecher said.
While ICE will be gaining a clearinghouse, Sprecher there still may be some room to work with LCH Clearnet in London which currently clears its trades. He said he has some "interesting ideas," that he wanted to talk to LCH about. In the last 12 months customers of ICE have paid the London shop $36 million in clearing fees for transactions on ICE.
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