What is Jeff Sprecher to do with the New York Stock Exchange? The boss of IntercontinentalExchange has just agreed to buy that venerable institution’s parent, NYSE Euronext, for $8.2bn. But cash equity trading is low margin, even if the NYSE brand makes a profitable listings business possible. The real attraction is NYSE’s Liffe European derivatives exchange. So ICE aims to spin off the Euronext equity exchange. Mr Sprecher might like to spin off the NYSE, too, but its status as a symbol of American capitalism will prevent him. So he is stuck with a business that, in six years, has gone from a near-monopoly in trading of NYSE-listed stocks to a 25 per cent share. Well, if floor trading should die out, Mr Sprecher can always sell the financial news channels footage of men in blue coats yelling and throwing paper.
This is a small complication. But it is emblematic of the deal’s complexities. If the tie-up works as advertised, both sides will be happy. ICE has paid NYSE Euronext shareholders a 38 per cent premium – a total of $2.2bn – for a stock that has gone nowhere for four years. For ICE the $450m in annual synergies it expects, if realised, are easily worth $3bn or more.
But if there is sufficiently small overlap between the businesses for antitrust regulators to allow it, where will the savings come from? ICE thinks NYSE Euronext could be run more tightly. There is some overlap: both companies have clearing businesses, which are costly to run. Mr Sprecher is betting that, because the two clearing units mostly clear different things (energy, commodities and emissions at ICE; interest rates and fixed income at NYSE), regulators will be sanguine. He may be right. And ICE has a strong record of cost-cutting. But it is buying a dreadful chimera of a company, built out of at least five previously distinct parts.