The chief executive of Atlanta-based Intercontinental Exchange said a “disappointing level of engagement” from his counterparts at the London Stock Exchange played its part in his company’s decision not to pursue a takeover of the UK group.
Jeffrey Sprecher, who is also ICE’s chairman, made the comments on a first-quarter earnings call with analysts shortly after ICE confirmed it “has no current intention to make an offer for LSEG” – a move that could have scuppered the LSE’s plans to merge with Germany’s Deutsche Börse.
ICE said in a statement on May 4 that following due diligence it had “determined that there was insufficient engagement to confirm the potential market and shareholder benefits of a strategic combination”.
ICE’s statement sent LSE shares sharply down.
The US exchange, which was being advised by bankers at Morgan Stanley and Moelis & Co, had been mulling a rival offer for the LSE since the UK exchange confirmed it was in talks over a “merger of equals” with Deutsche Börse on February 23. In mid-March, the two European exchanges said they had agreed the terms of a deal.
Sprecher said a “disappointing level of engagement” from the LSE’s chief executive, Xavier Rolet, and its chairman Donald Brydon, meant ICE could not make a reasonable assessment of the benefit of any merger.
He said that “over the last year, members of our board and our advisers attempted unsuccessfully to arrange meetings, through the LSE chairman, to discuss these ideas”.
He added: “Then, following our public expression in March, the LSE chairman and CEO did not engage with ICE.”
The LSE said in a statement: “ICE has been provided with information and had access to management under Rule 20.2 of the UK Takeover Code. However, at no time has ICE made an approach to LSEG with a possible proposal or details of any such possible proposal.”
The prospect that the LSE/ Deutsche Börse tie-up could be derailed by a rival bid from the US was dismissed by Rolet in an April interview with The Telegraph, in which the LSE chief questioned whether a company based in Atlanta was going to “worry about the financing of European industry”.
But Sprecher said on the May 4 call: “The point I really want to make is that we have a history of doing M&A deals and delivering on what we say we will do. When we can’t get visibility…it makes it very hard for us to look our shareholders in the eye and say we are going to deliver a specific amount of returns. It takes engagement to come to those kinds of determinations.”
ICE was said to be interested in the LSE in part because of LCH.Clearnet, the clearing house in which the LSE has a 57% stake. LCH’s SwapClear unit is the largest clearer of over-the-counter interest-rate swaps, an asset class in which ICE has made no inroads in Europe to date.
Jake Pugh, an independent derivatives consultant, said: “I don’t think there was a strategic fit for ICE on any level. It has already made clear it is re-positioning itself be more subscription revenue-focused than transaction revenue-focused, and there were a lot of complexities around owning SwapClear and several continental European businesses.”
ICE is also already in the process of digesting big deals. In October 2015 it agreed to acquire the financial data provider Interactive Data for $5.3 billion. A month later, it agreed to buy the energy trading software provider Trayport from BGC Partners for $650 million in stock – a deal which could yet undergo an in-depth investigation by The Competition and Markets Authority in the UK. Both deals were completed in December.
Pugh said: “ICE has a million other better things to do and focus on, including the acquisitions of IDC and Trayport.”
The news that ICE is not planning to bid for the LSE came as the US exchange group published results for the first three months of 2016 that Sprecher, hailed as “the best quarter in the company’s history”.
He added in a statement that the performance reflected the firm’s “ability to deliver strong operational results, even as we consider potential strategic opportunities”.
ICE’s first-quarter performance was boosted by two such opportunities: the additions of IDC and Trayport. Between them, the businesses added $260 million to ICE’s first-quarter net revenues, which surged 35% from the first quarter of 2015 to $1.2 billion.
Net profits, adjusted to exclude acquisition-related charges, rose by 28% to $441 million.
Rebecca Healey, an market structure analyst at Tabb Group, said: “Sprecher has somewhat of a history of the contrarian view so it is pretty much par for the course that ICE are choosing not to do what everyone else expects.
“Time will reveal the reasons behind it but I would imagine that ICE currently has sufficient reconstruction to complete with on boarding of IDC. More importantly, ICE may view traditional exchanges as past their heyday and be looking at alternative innovation in this space. That would be a more likely Sprecher approach – expect the unexpected.”
Shares in the UK exchange group had surged from 2313 pence on February 22 – the day before its talks with Deutsche Börse were revealed – to 2870 pence on March 1, the day ICE confirmed it was mulling its own bid.
At around 12.30pm BST on May 4, the shares had been trading at 2696 pence, but they lost more than 6% of their value in little over an hour after ICE’s statement and were trading at 2516 pence by 13.37 BST.
Deutsche Börse shares, meanwhile, rose roughly 6% to €74.6 in the same time.
Additional reporting by Vivek Ahuja
UPDATE: This story was updated on April 5 with a statement from the London Stock Exchange.
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