U.S.-based Intercontinental Exchange (ICE), the owner of the NYSE, confirmed that it is looking at whether to submit a bid for the London Stock Exchange (LDNXF), possibly thwarting Deutsche Boerse's (DBOEY) offer -- but ICE's chances of success look pretty slim.
Bloomberg News first reported that Atlanta-based ICE was working with Morgan Stanley (MS), among others, to prepare a bid for the LSE after Deutsche Boerse's bid more than a week ago.
"There can be no certainty that any offer will be made, nor as to the terms on which any offer will be made. A further announcement will be made as appropriate," ICE said in a statement confirming the talks on Tuesday.
ICE has until March 29 to announce it would bid, but it would save itself a lot of unnecessary work if it decided not to. While a merger between the LSE and Deutsche Boerse would be spurred on by the threat of Britain leaving the European Union, or "Brexit" as such a move has become known, a takeover by the ICE would be harder to justify. (By the way, if you want to see the London Stock Exchange's reaction, head over to our sister website thedeal.com, where we have a story).
Deutsche Boerse offered LSE shareholders 0.4421 shares in a newly created, merged entity for each LSE share they own, while its own shareholders would receive one for one. This means Deutsche Boerse shareholders will end up with 54.4% of the new, combined stock exchange and LSE shareholders would get 45.6%.
An offer from ICE should top that, but even so it would face big hurdles at a time when uncertainty is rising both because of increased volatility in the markets and because of the June 23 referendum in which the British will say whether they want to remain in the EU or leave.
The biggest hurdle a bid from ICE would face is regulatory. A tie-up between the LSE and Deutsche Boerse at a time when the U.K. is in danger of leaving the EU would likely be seen with friendlier eyes by European anti-trust regulators, because it would mean that the EU will keep some sort of foothold in London, even in the case of Brexit.
The same does not apply for U.S.-based ICE. For one, a merger between it and the LSE would push London further away from Frankfurt's reach. The eurozone's biggest economy is unlikely to look kindly upon a huge stock exchange operating in Europe but outside the EU's umbrella.
Remember, too, that this isn't the first time the ICE has tried to steal Deutsche Boerse's prey. Last time, it succeeded -- it bought NYSE Euronext in 2013, after a bid by Deutsche Boerse for it was blocked a year earlier by the European Commission on anti-trust concerns.
Euronext -- which was formed in 2000 from the merger of the Amsterdam, Brussels, Paris and Portugal stock exchanges and was bought by NYSE in 2007 -- was spun off from NYSE Euronext in 2014 as part of the ICE/NYSE Euronext merger.
The EU said in 2012 that its main reason for rejecting a merger between Deutsche Boerse and NYSE Euronext was that it would have created a de-facto monopoly in derivatives trading.
ICE, which already owns the London International Financial Futures and Options Exchange (Liffe), is the world's second-largest derivatives exchange after the CME. Deutsche Boerse's Eurex is only the third-largest derivatives exchange in the world, according to statistics supplier Statista.
Coupled with the fact that EU regulators are likely to be keen to see the LSE merge with the Frankfurt exchange rather than a U.S.-based one, this is very likely to sway the argument against ICE. The Atlanta-based exchange would do well to let the end-March deadline pass without submitting a bid for the London Stock Exchange.
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