ISE Deal Ups Ante
By Joe Bel Bruno THE ASSOCIATED PRESS
NEW YORK — With stock options trading now one of the world’s fastest-growing markets, Deutsche Boerse AG’s pact to buy International Securities Exchange Holdings Inc. for $2.8 billion could lead to more deals — and perhaps a rival bid for the second- largest U.S. options exchange.
The German stock exchange on Monday announced the $2.8 billion acquisition of New York-based ISE, a deal that will create the world’s top options market, rivaling U.S. players like the Chicago Board Options Exchange and Chicago Mercantile Exchange.
With ISE investors getting an almost 50 percent premium for their shares, the offer was viewed on Wall Street as being one of the most aggressive made during a period of growing consolidation among global exchanges. It also ups the ante for NYSE Euro-next Inc. and Nasdaq Stock Market Inc., both keen on expanding farther into options trading.
“It was somewhat out of character for Deutsche Boerse to be so aggressive, but it shows how important this is for them,” said Richard Herr, an analyst with Keefe, Bruyette & Woods. “But, I can’t totally rule out a competing bid.”
Deutsche Boerse Chief Executive Reto Francioni has been under pressure to strike an international acquisition after his company’s efforts to buy Paris-based stock exchange operator Euronext were foiled by the New York Stock Exchange.
The ISE’s two top executives — co-founders David Krell and Gary Katz — used to run the Big Board’s options business. They formed ISE when former NYSE Chairman and CEO Dick Grasso showed little interest in building up an options business.
The NYSE would not comment on the Deutsche Boerse-ISE deal, but analysts were curious to see whether NYSE Euro-next CEO John Thain would try to upset the agreement. He wants to expand the NYSE’s options platform — and has not ruled out doing so by acquisition. And, already saddled with absorbing Euro-next, a deal with ISE would be far simpler since the options exchange’s headquarters is around the corner from the NYSE.
It also would meld with the NYSE’s London-based Liffe options exchange, acquired as part of the Euronext deal.
Regardless of whether Thain makes a competing bid, the Deutsche Boerse’s move into America was seen as a catalyst for more deals. It could force others to quickly come forward with their own agreements.
“What this does is give any other deals some urgency. If there are two parties out there haggling over price, they tend to settle pretty quickly when another deal happens,” said David Easthope, an analyst with business consulting firm Celent LLC.
Intercontinental Exchange Inc. has bid $9.6 billion for the Chicago Board of Trade, which is also considering a rival $8.2 billion offer by the Chicago Mercantile Exchange. The Philadelphia Stock Exchange, the third-largest U.S. options market, is said to be talking with rivals that include the Nasdaq.
The London Stock Exchange fought off several bids, including a hostile one from the Nasdaq, which is now its largest shareholder.
Robert Greifeld, chief executive of the all-electronic Nasdaq, said he wants to expand the company’s options trading this year. The exchange plans to start trading options more heavily once the Securities and Exchange Commissions decides whether to expand a program that would convert decimal trading in options into penny increments.
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