NEW YORK, N.Y. – The venerable New York Stock Exchange is being sold to a much younger rival in Atlanta for about $8 billion, ending more than two centuries of independence for the iconic Big Board.
The buyer, IntercontinentalExchange, is a 12-year-old exchange that deals in investing contracts known as futures. It said Thursday that little would change for the trading floor in Manhattan’s financial district.
The NYSE dates to 1792, when 24 brokers and merchants traded stocks under a buttonwood tree on Wall Street. But its importance today is mostly symbolic. Most trading is done on computers that match thousands of orders a second.
“The cash equities business in America has effectively been obliterated,” said Thomas Caldwell, chairman of Caldwell Securities in Toronto and a shareholder in the New York exchange’s parent company, NYSE Euronext.
He said that the jewel of the deal is not the New York exchange but Liffe, a futures exchange founded in London.
“The original New York Stock Exchange, it’s got a brand name, it’s got recognition, but as a business it’s a very small part of this thing,” Caldwell said.
Three decades ago, the floor of the New York exchange was full of bustling traders. Today, one of its largest booths belongs to the cable news channel CNBC, which broadcasts there for most of the business day.
The stature of the New York exchange has been dwindling for years because of intensifying competition, a harsher regulatory environment and the declining popularity of stocks as an investment, Caldwell said.
NYSE Euronext has been looking for a deal. Last year, ICE and Nasdaq OMX Group Inc., which competes with the NYSE for stock listings, made an $11 billion bid to buy NYSE Euronext. But that deal fell apart after regulators raised antitrust concerns.
Earlier this year, European regulators blocked Deutsche Boerse AG from buying NYSE Euronext.
The deal-making is part of a worldwide consolidation of the securities industry, a result of advances in computer and communications technology and a more globalized economy that has squeezed out many of the industry’s players.
However, several deals have fallen through. The Australian government blocked an US$8.3-billion bid for the Australian Stock Exchange made by the Singapore stock market in 2011.
About the same time, a friendly agreement between the companies that run the Toronto and London stock exchanges failed to win shareholder support. It may have also faced regulatory hurdles.
The TMX Group Inc. (TSX:X), which owns the Toronto Stock Exchange, Montreal derivatives exchange and other markets, was eventually acquired for $3.8 billion by a group that included several Canadian banks and pension funds. The deal resulted in TMX Group absorbing the bank-owned Alpha trading system.
ICE was established in May 2000. Its founding shareholders represented some of the world’s largest energy companies and financial institutions, according to the company’s most recent annual report.
ICE’s stated mission was to transform the energy futures market by providing more transparency.
The company has expanded through a series of acquisitions during the last decade and listed on the NYSE in an initial public offering in November 2005.
Analysts forecast that ICE’s revenues will reach $1.4 billion this year, according to FactSet, a provider of financial data. That’s more than double the $574 million of revenues that the company reported in 2007.
“We believe the combined company will be better positioned to compete and serve customers across a broad range of asset classes by uniting our global brands, expertise and infrastructure,” said ICE Chairman and CEO Jeffrey Sprecher.
Sprecher will keep his positions. Four members of the NYSE board will be added to ICE’s board, expanding it to 15 members.
For each share of NYSE Euronext stock that they own, shareholders can choose either $33.12 in cash, roughly a quarter-share of ICE, or a combination of $11.27 in cash and roughly one-sixth of a share of ICE.
NYSE’s stock jumped $7.89, or 33 per cent, to $31.95 in heavy trading shortly after the market opened. ICE’s stock fell $1.43 to $126.8.
ICE plans to pay for the cash part of the acquisition with a combination of cash and existing debt. It added that the deal will help it cut costs and should increase its earnings more than 15 per cent in the first year after the deal closes.
The deal has been approved by the boards of both companies, but still needs the approvals by regulators and shareholders of both companies. It’s expected to close in the second half of next year.
Peter Costa, President of Empire Executions Inc., a boutique trading firm on the floor of the NYSE, and a governor with the New York Stock Exchange, said that both companies knew the value of the NYSE brand and would try to preserve it.
“The trading floor, while iconic, may seem to be an anachronism in this high-speed world of electronic this and electronic that, but it still survives because the customers that use the trading floor still see the added value of having some human intervention,” Costa said in an email.
Costa, also an NYSE stockholder, said while that the premium that ICE was paying was not as high as he would have liked, it was “still fairly generous.”
— with files from The Canadian Press