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Deutsche Börse, the operator of the Frankfurt Stock Exchange, has signed an agreement to buy International Securities Exchange (ISE), America’s second-largest options market, for $2.8 billion in cash.
The acquisition is Deutsche Börse’s latest attempt to expand its business, after its unsuccessful bid to buy Euronext, the pan-European bourse, last year in a takeover battle won by the New York Stock Exchange. It will also help to expand Deutsche’s American operation after it jointly acquired the futures unit of New York’s Eurex market with SWX Group, of Switzerland, in July last year.
Deutsche Börse offered $67.50 a share, or $2.8 billion, representing a 48% premium to the ISE closing price on Friday, before news of the takeover discussions became public. The two organisations expect the deal to close in the fourth quarter, pending approval from the US Securities and Exchange Commission. Deutsche Börse said that the merger would create pretax synergies of $50 million a year.
Deutsche Börse plans to acquire the business through the Eurex derivatives subsidiary, in which it owns 80%. Eurex is a joint venture operated with the SWX Swiss Exchange. Deutsche Boerse will contribute 85% of the purchase price, while SWX will pay 15%.
Brad Bailey, an analyst with Aite Group, a financial consulting firm, said: “I’m not sure if anything can be considered a surprise any more when it comes to cross-border, cross asset exchange partnerships or acquisitions, but the move by Deutsche Börse to acquire ISE is an interesting and bold move.” The acquisition will turn Deutsche into a big player in the American options trading business. It comes as traditional stock markets have been looking to diversify into higher-margin products such as derivatives, which offer the fastest-growing market for financial instruments.
However, the US market for options – derivatives that confer the right to buy or sell securities at a certain price within a specific period – is competitive. Last month Intercontinental Exchange (ICE), the electronic exchange, sought to gatecrash an agreed takeover of the Chicago Board of Trade (CBoT) by making an unsolicited $9.9 billion offer for the business. ICE said that its proposal would allow CBoT to sidestep competition concerns raised by the $8.9 billion deal agreed with the Chicago Mercantile Exchange. CBoT is mulling the two rival offers. ICE’s counter-offer for CBoT follows its $1.8 billion takeover of the New York Board of Trade in January.
Deutsche Börse yesterday named Thomas Eichelmann as its next chief financial officer. Mr Eichelmann, 41, who works for Roland Berger Strategy Consultants, will replace Mathias Hlubek, whose resignation was announced in March.