Low trade volumes impacted NYSE Euronext’s (NYSE:NYX) earnings for the fourth quarter of 2012, as revenues declined by 14% over the prior year’s figure. The cash trading and listings was the worst hit as revenues declined by 17%, while derivatives and information technology services revenues were in line with 2011 levels. The company announced a $8.2 billion cash and stock deal with IntercontinentalExchange Inc. (ICE) in December, wherein the latter would acquire NYSE Euronext, and the earnings report is not expected to have a big impact on the market price. NYSE’s shareholders will have the option to either receive $33.12 in cash, 0.2581 share of ICE, or a mix of $11.27 in cash plus 0.1703 ICE share. This price is at a premium of nearly 35% to our estimate of $25 per share.
Liffe The Main Prize
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We expect that NYSE’s Liffe business is the primary reason for the ICE takeover. With new regulations requiring all over-the-counter (OTC) trades to be cleared through a central exchange expected to come in play this year, Liffe’s interest rate contract trading platform is believed to be of particular interest to ICE. (Please read: NYSE-ICE Deal Could Disrupt CME’s European Expansion for more) Although the total average daily volume (ADV) for interest rate products declined 13%, year-on-year, through the fourth quarter, the ADV for January 2013 in Europe was up 40% over the prior year.
Cash Trading Remains Low
Cash trading and listings account for almost two-third of NYSE’s revenues and half of the EBITDA. The U.S. cash products ADV for the fourth quarter was down 27% from the 2011 level, continuing the year-long trend. We believe that this trading slump is temporary and the market will regain interest in the coming years as macro-economic conditions improve. ICE’s plans for the traditional NYSE trading platform remain a subject of debate amongst analysts.
NYSE led the U.S. IPO market with 79 IPOs through the calendar year, including 53% of all technology companies that went public in 2012. NYSE’s competitor, Nasdaq has traditionally been regarded as the preferred destination for tech companies, but after the Facebook (NASDAQ:FB) IPO fiasco in 2012, NYSE seems to have gained the upper hand. Both exchanges have reported a decline in the number of companies listed, primarily due to uncertain economic conditions, but the effect has been more pronounced for Nasdaq than it has for NYSE. The number of companies listed on Nasdaq dropped from 2,610 at the end of the September quarter to 2,577 at the end of December, while the decline for NYSE was from 2,951 to 2,939.