For the second time in four years IntercontinentalExchange tried, and ultimately failed, to break up a corporate marriage among rivals.
On Monday, Atlanta-based ICE and the parent company of the Nasdaq stock exchange dropped their $11 billion hostile takeover bid for the parent of the iconic New York Stock Exchange, saying the proposed deal couldn’t clear regulatory hurdles.
So what will ICE do now?
Analysts said ICE will likely do as it always has, be aggressive and look to make other acquisitions that bring it into new markets.
“There was no downside to try to do what [ICE] did,” said Paul Zubulake, a senior analyst with Boston-based Aite Group.
The 11-year-old ICE might not be a household name, but the business done over its array of trading exchanges affects things such as the prices of groceries and gasoline.
ICE would have roughly doubled in size through the proposed deal with Nasdaq, which would have broken up the global trading powerhouse NYSE Euronext.
The loss no doubt stings. The ante-upping gamble had been the talk of Wall Street, but the odds of success, analysts said, were challenging from the get-go.
First, there were U.S. and European regulatory concerns, and the ICE-Nasdaq team would have had to persuade NYSE shareholders to defy the company’s board.
In April, ICE and Nasdaq OMX Group swooped in to poach NYSE Euronext, which had already engaged in a proposed $10 billion deal with Germany’s Deutsche Boerse.
That deal goes for shareholder vote in July, but it faces its own regulatory questions.
ICE is no stranger to buyout offers that grab financial headlines, and it has made several successful buys. They include a 2007 deal to buy the New York Board of Trade.
The firm also unsuccessfully tried to derail a merger four years ago between the venerable Chicago Mercantile Exchange and the Chicago Board of Trade.
ICE’s business is poorly understood among the general public, but it and other exchanges are vital to the functioning of the economy.
ICE operates trading platforms for futures contracts and other derivatives.
Derivatives made up of bundled mortgage securities helped tank the economy in 2008, but derivatives are commonly and safely used in other industries.
Businesses use futures and other derivatives to hedge against adverse commodity or financial-market movements to lessen the impact of swings in prices of products such as oil or swings in interest rates. That stabilizes prices for consumers, too.
“For them to grow on the scale and magnitude of this transaction, perhaps that’s slipped between their fingers for now,” said Andy Nybo, head of derivatives at TABB Group, “but there are other opportunities around the globe.”
Some of those opportunities might be bids to buy other exchanges.
ICE also is preparing for a seismic shift in the global financial regulatory environment born in response to the financial collapse that could transform the company in even bigger ways than if it had won the NYSE Euronext sweepstakes.
Regulatory changes contemplated in Europe and under a broad financial law in the U.S. called Dodd-Frank would mandate more transparency in the murky world of over-the-counter (OTC) derivatives.
Before the meltdown, trades in these derivatives were done privately with no one keeping track of all the risk.
Regulators want all OTC derivatives, which the Bank for International Settlements estimates at nearly $600 trillion in outstanding contracts as of June 2010, to pass through “clearinghouses,” which will help regulators keep an eye on the market.
ICE is among the companies that have launched such clearinghouses since the financial collapse, operating one in the U.S. and another in Europe.
Last week, ICE Chairman and CEO Jeff Sprecher told The Atlanta Journal-Constitution that 2011 is a vital year in his company’s history.
“This time is critical, but not because of [the NYSE Euronext] deal,” Sprecher said last week. “Longer term, Dodd-Frank will have a bigger effect.”
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