US bourses not rushing to merge, analysts say

Friday, 18 February 2011 04:12 -     - {{hitsCtrl.values.hits}}

 No flurry of deals seen in response to recent tie-ups

  •  More mergers likely in 2012; ICE, CBOE eyed – Analysts
  • Scepticism abounds on report that CME would bid for NYSE

CHICAGO (Reuters): US exchanges may not rush to strike deals to compete with the combined Deutsche Boerse AG and NYSE Euronext, even as the sector is almost certain to consolidate further over the long term.

In particular, analysts cast doubt on a report that CME Group Inc would try to buy NYSE Euronext – operator of the New York Stock Exchange – away from its German suitor, which this week offered to pay $ 10.2 billion for the icon of US capitalism.

Chicago-based CME was a major force during the last wave of exchange consolidation, buying the Chicago Board of Trade in 2007 and the New York Mercantile Exchange in 2008 to cement its dominance in U.S. futures. Deutsche Boerse’s agreement on Wednesday to buy NYSE Euronext sparked speculation CME would jump into the fray again.

“The rationale for consolidation, to save costs and eliminate redundant systems - that’s going to exist today, tomorrow, yesterday and next year,” said Edward Ditmire, a New York-based analyst for Macquarie Securities.

But with CME executives having said explicitly that they have little current interest in growing by acquisition, he said, “it doesn’t seem to me that they ... are looking to do a deal.”

CME said in a statement on Tuesday that it is “committed” to organic growth. Later that day CME Executive Chairman Terrence Duffy told CNBC that NYSE Euronext’s European futures exchange is “attractive,” but analysts say Duffy is only looking.

“We do not believe the company is willing to take on other assets in more competitive businesses (cash equities, options) for the sake of expanding the reach of its futures business,” Alex Kramm, a New York-based analyst for UBS, told clients in a note Wednesday. “Ultimately, we do not believe CME is likely to pursue this course of action.”

More likely than a flurry of mergers in coming months is continued consolidation over time, with bigger deals possible next year, several analysts said.

Energy bourse operator IntercontinentalExchange Inc, for instance, could be a target for a combined NYSE-Deutsche Boerse, which despite its market-dominating size would have little presence in commodities trading, said Keefe Bruyette and Wood analyst Niamh Alexander.

London Stock Exchange’s bid to take over Canada’s TMX Group, announced last week, could create an exchange giant with the pocketbook and the appetite to acquire NASDAQ OMX Group, Alexander said.

And Singapore Exchange’s $7.9 billion bid for rival ASX, announced last October, could create a behemoth interested in either ICE or Nasdaq, she said.

“We believe the newly combined entities -- once past their regulatory approval hurdles and the ‘honeymoon’ stage of the mergers where the low hanging fruit of synergies have been grasped -- could revisit the U.S. as bigger, more lucrative acquirors though they could then have other options in the higher growth Asian and Latin American markets that are currently not open to combinations,” she told investors in a note on Wednesday.

Several analysts also said CBOE Holdings Inc would also be an attractive acquisition target.

Nasdaq is the most threatened by the Deutsche Boerse-NYSE Euronext tie-up, because the combined company would have the biggest market share in U.S. options, an increased hold on U.S. equities trading and a more dominant European securities business.

That makes it “strategically and competitively more problematic to Nasdaq OMX than to CME,” Macquarie’s Ditmire said. Even so, he said, it’s unclear that a quick deal is necessary. “I’m not sure there is a huge rush on,” he said.

Nasdaq, IntercontinentalExchange may team up-report

CHICAGO (Reuters): Nasdaq OMX Group is scrambling to respond to Deutsche Boerse AG’s $10.2 billion takeover of NYSE Euronext, and may team up with IntercontinentalExchange Inc, Fox Business Network said.

Nasdaq has hired an investment bank and has discussed launching a joint bid for NYSE with CME Group Inc, the report said. The deal to team up with ICE had not gone to Nasdaq’s board of directors as of Tuesday, the report said.

It was unclear whether the report was referring to a potential Nasdaq merger with ICE, or to a possible joint bid for NYSE.

“Everybody has to respond but no one is in worse shape than the Nasdaq,” Fox Business News reporter Charles Gasparino said. “There is a chance they could get swept away in this.”

Representatives of Nasdaq and ICE did not immediately respond to requests for comment. CME has previously declined to comment on prospects of working with Nasdaq on a bid for NYSE.

Revised SGX-ASX deal fails to ease political concerns

CANBERRA (Reuters): The Singapore exchange’s revised offer for Australian bourse operator ASX still faces major political hurdles in Australia after key independent lawmakers on Thursday continued to voice concerns about the $7.9 billion takeover.

The Singapore exchange on Tuesday amended its offer for ASX, part of a global wave of exchange consolidation, with changes designed to help it overcome political concerns over a deal which will needs both government and parliamentary approval.

Key independents and Greens lawmakers contacted by Reuters on Thursday said the revised offer has not changed their views.

“ASX is not just any company. It is an iconic Australian financial organisation, the sale of which would compromise our financial sovereignty,” independent Andrew Wilkie told Reuters on Thursday, in line with his stand before the revised offer.

Parliament must vote to remove a 15 percent cap on individual holdings in the ASX in order for the deal to succeed.

Independent Senator Nick Xenophon, who also has concerns about the takeover, said he still wanted to send the issue to a Senate inquiry to examine the full implications for Australia.

Western Australian independent Tony Crook, who normally votes with the opposition, said he also remained opposed to the deal at this stage. He also backed a parliamentary inquiry.

Opposition treasury spokesman Joe Hockey earlier this week said he would not form a view on the deal until the government had made its decision.

The government has refused to comment on the revised offer.