ICE Values Euronext IPO, Market Unresponsive - Analyst Blog

After about nine months of contemplations,IntercontinentalExchange Group Inc. ICE, or ICE Group, has moved toward the final leg of the initial public offering IPO of the Euronext NV platform. The company announced that about 60.2%, or about 42.1 million shares, of Euronext is valued between €19–25 per share.

Thus, the total value of Euronext sums to €1.33–1.75 billion (approximately $1.8–2.4 billion). However, in Jan 2014, this pan-European firm was valued within €1.5–1.8 billion ($2.1−2.5 billion).

Following the announcement of valuation, shares of ICE Group dipped 0.9% on Wednesday to close at $188.74, reflecting least resistance in the stock. As well, shares of ICE Group have plummeted about 16% year-to-date, which calls for rapid consolidation of the company's business.          

After completion of the IPO, Euronext will be listed in Paris, Amsterdam and Brussels. By the end of 2014, it will also be listed in Lisbon. Euronext's equities and derivatives exchanges are already operational in all these cities.

Notably, this IPO will make Euronext an autonomous entity for the first time since the Euronext exchanges of Paris and Amsterdam were acquired by NYSE Group Inc., to form NYSE Euronext Inc. in 2007.

Course of Action for Divestment

Before the trading of Euronext begins on Jun 20, ICE Group will vend 33% stake in Euronext to a consortium of ten European investors, which include Banco Espirito Santo SA, BNP Paribas SA, ABN Amro Group NV, Societe Generale SA and Euroclear SA/NV. These investors will buy shares at 4% discount to the IPO price and further retain these at least 3 years post the IPO. The divestment of these shares will relieve ICE Group from retaining a 25% long-term interest in Euronext.

Alongside, the IPO will be executed in a two-part offering, whereby the institutional and retail investors of Netherlands, France, Belgium and Portugal will be granted shares through a secondary sale. The remaining shares will then be offered to institutional investors in other jurisdictions, including that of the U.S., through private placement. Meanwhile, the employees of Euronext will also have a chance to buy its shares at a discounted price.

Outlook

While the $11 billion acquisition of NYSE Euronext in Nov 2013 has positioned ICE Group as the second-largest global exchange, it also warrants consolidation of operations of the merged company. We believe the spin-off of Euronext coupled with the termination of NYSE Liffe's New York Portfolio Clearing (NYPC) operations from mid-2014 onwards should make ICE Group a leaner and flexible company. 

Such moves will enable ICE Group to focus on enhancing trading activity, cost synergiesand operational transparency. The company further plans to utilize the proceeds from the disposition of Euronext to de-leverage its balance sheet. Alongside, the Euronext IPO will help the entity transpose itself and create new demand for various capital sources. It will also boost healthy competition in Europe, thereby easing the antitrust concerns of regulators.

Currently, ICE Group carries a Zacks Rank #3 (Hold). Some better-ranked financial stocks that are worth considering include Euronet Worldwide Inc. EEFT, Ladder Capital Corp. LADR and Hallmark Financial Services Inc. HALL. All these stocks sport a Zacks Rank #1 (Strong Buy).