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June23,201311:19pm

All eyes on Euronext as ICE decision day looms in Brussels

ByPhilipStaffordinLondonandArashMassoudiinNewYork

The future of Euronext is coming under fresh scrutiny as European antitrust authorities look set to rubber-stamp IntercontinentalExchanges $10bn cash and shares purchase of NYSE Euronext. Official approval, which could come as soon as Monday, will represent the crossing of the most significant hurdle for the deal as ICE bids to create one of the worlds largest exchanges operators. By buying the owner of Liffe, it will give ICE the worlds third-largest market for trading interest rate derivatives, just as investors prepare for the Federal Reserve to taper its quantatitive easing programme, creating more interest rate volatility and higher demand for hedging. But closure of the deal may also set off intense activity among corporate bankers seeking a part in finalising the future of the markets infrastructure operator. Jeff Sprecher, chief executive of ICE, plans to split up the conglomerate of exchanges, keeping the New York Stock Exchange but offloading the European assets. The assets comprise the stock exchanges of Paris, Amsterdam, Lisbon and Brussels and an equity options business, and may include a London data centre, where the trades of these continental bourses physically take place. Mr Sprecher has promised further details once the deal is closed, but both parties have consistently suggested that Euronext will be floated as an independent company, probably next year. A listing will be an opportunity for Euronext to determine its own future and focusing on European equity markets and raising capital for European companies, Mr Sprecher said when the deal was announced. Certainly Euronext, which merged with NYSE in 2006 to create a $10bn company, is not the trophy asset it once was. Its performance in the equities market has been hit by a slowdown in trading activity, fierce competition from alternative venues and a dearth of stock market listings. A potential financial transactions tax on equities, to which France has signed up, is a further problem. But analysts point out that exchanges generate cash with fees from listing and trading pushing margins to around 50 per cent. Peter Lenardos, an analyst at RBC Capital Markets, estimates Euronext could be worth $1.5bn-$2bn post-listing, backed by a dividend policy paying out around $300m annually. NYSE Euronext deputy Dominque Cerutti is in line to run the business. A European-based IPO has been seized on by some politicians who see an opportunity to regain control of financial services that has leaked to London, Frankfurt and New York in the last decade. Two months ago the French government informally approached a consortium of four French financial institutions Axa, Socit Gnrale, Crdit Agricole and BNP Paribas to take a dominant role in the Euronext offering, according to three people familiar with the situation. However, it was spurned as the banks reacted to being taxed on bonuses. But an IPO means Mr Sprecher must also reassure the investors who bought ICE shares for growth that they will not be left holding the rump of a cash-generative but steady business. If you are an ICE shareholder, you will monitor the valuation and size of the Euronext offering because that is embedded into your purchase of NYSE, says Rich Repetto, principal at Sandler ONeill in New York. The more they get for Euronext then the cheaper the rest of the company was. The difficulties with an IPO, and the prolonged discussions around it, help explain why industry rumours persist that the assets will

instead be sold. Bob Greifeld, chief executive of Nasdaq OMX, said in January he would be interested if the asset became available. Deutsche Brse and the London Stock Exchange, Europes two other major equity markets, are also monitoring the situation closely. A full sale may also allow ICE to offload other assets, such as NYSEs European technology assets. They include a 25 per cent stake in UK trading technology company Fixnetix and Euronexts London data centre. Besides Euronexts stock trading assets, the site also hosts trading venues owned by Goldman Sachs and Socit Gnrale. However the site, which cost $500m to build and is equal to the size of seven football pitches, is only half-full. Equinix, a US data centre provider, made a $125m offer for the site to NYSE Euronext last autumn, and although it was rebuffed, Equinixs interest remains serious, two people with the situation have said. The EU verdict may be near but for ICE, the hard work may just be starting. www.ft.com/tradingroom

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