IPO Values Euronext At $1.9 Billion, No Stake Retained By IntercontinentalExchange

ICE: Intercontinental Exchange logo
Intercontinental Exchange

European exchange operator Euronext NV has been spun off by IntercontinentalExchange Group (NYSE:ICE) following its IPO. Euronext will operate as a separate entity for the first time since 2007, when it was acquired by NYSE Group, operator of the New York Stock Exchange. Euronext was operated by the combined ICE Group for seven months following the ICE-NYSE merger in November 2013. [1]

Although Euronext was estimated to be worth about €1.5-1.8 billion ($2-2.5 billion) in January, the IPO valued the company slightly lower value at about €1.4 billion ($1.9 billion). [2] [3]

See Our Full Analysis For IntercontinentalExchange

Euronext NV

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The split of Euronext NV ownership is as follows

  • Institutional Investors or Related Shareholders: 33%

IntercontinentalExchange Group was instructed by regulators to keep a minimum 25% state in Euronext for a period of at least three years after the IPO, or to find institutional investors that were willing to do the same. Subsequently, ICE sold a 33.36% stake in Euronext to a group of investors including BNP Paribas SA, Banco Espirito Santo SA, ABN Amro Group NV, Euroclear SA/NV and Societe Generale shortly before the IPO. The company mentioned that the institutional investors would get a discount to the IPO price provided they commit to keep the stake for three years. The investors bought stake at a discount of 4% to the €20 IPO price. These investors (or related shareholders) are prohibited from selling more than a 7.5% stake to any investor not listed on the shareholders’ agreement for three years. [4]

  • Initial Public Offering: 60%

ICE sold a 60.37% stake in Euronext (about 42.24 million shares) at the IPO on Thursday, June 19 for an initial price of €20 per share, implying a total market value of €1.4 billion ($1.9 billion) for the company. This price was at the lower end of the previously anticipated range of €19-25 per share. [3]

  • Coordinators of IPO: 6%

ABN Amro Bank, JPMorgan Chase (NYSE:JPM) and Societe Generale acted as joint coordinators of the IPO with an over-allotment option of up to 4.21 million shares (6% stake), after which ICE Group will completely divest itself from the business. [5]

Euronext NV is currently listed on exchanges in Paris, Brussels and Amsterdam and is likely to be listed in Lisbon as well before the fourth quarter. The exchange operator will now independently compete with the London Stock Exchange Group, which dominates the European equities market. [6] Additionally, Euronext NV will compete with Liffe (retained by the ICE Group) and Deutsche Boerse’s Eurex in the derivatives market. In the most recent quarter, the company generated about 53% of its revenues from cash trading, with the remaining attributable to derivatives trading. [4] The share of trading revenues from derivatives trading has increased from about 26% in 2013, to almost 47% in Q1 2014. Going forward, the company intends to increase its focus on derivatives, with equity options being the key class, accounting for over two-fifths of derivatives traded on Euronext.

IntercontinentalExchange Minus Euronext

Euronext contributed to ICE’s European equity trading business, with a revenue contribution of nearly $200 million in 2013. Comparatively, European derivatives trading contributed only about $66 million to ICE’s top line. Spinning off Euronext makes sense for ICE mainly because the cash trading business is a comparatively low-margin business relative to derivatives. Consequently, the elimination of Euronext’s revenue stream should push overall margins up. It is for this reason that the company intends to retain NYSE’s Liffe exchange, to focus on derivatives trading in Europe.

ICE will further benefit from cost synergies on its technology platform once Liffe completely migrates to ICE’s platform. Euronext expects Liffe to complete the transition to ICE’s technology platform by the end of the year. Our $225 price estimate for the IntercontinentalExchange Group is currently 15% ahead of the market price. We will restructure our model to reflect the changes once the company releases detailed financial statements.

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  1. Euronext IPO Priced Towards Low End Of Range, Reuters, June 2014 []
  2. ICE Plans Euronext IPO Before Summer After Partial Sale, Bloomberg, May 2014 []
  3. Euronext Sets IPO Price At €20 Per Share vs Range €19-25, Reuters, June 2014 [] []
  4. Euronext Final Prospectus PDF, Euronext, June 2014 [] []
  5. Euronext Detaches From ICE Through $1.2 Billion IPO, Bloomberg, June 2014 []
  6. Euronext: Alone At Last, The Economist, June 2014 []