IntercontinentalExchange Group Plans Euronext IPO In Second Quarter

IntercontinentalExchange Group (NYSE:ICE) said that it plans to roll out the initial public offering (IPO) for Euronext NV in the second quarter, with no details on the shares and pricing yet. Euronext shares will be traded on stock markets in Paris, Brussels and Amsterdam after the IPO. Before the planned IPO, ICE will sell 33% of its stake to a group of institutional investors including BNP Paribas SA, Banco Espirito Santo SA, ABN Amro Group NV, Euroclear SA/NV and Societe Generale. Euronext valued itself at about $2-2.5 billion earlier this year. ^[1]

ICE mentioned in its recent SEC filings that the proceeds from the Euronext IPO will be used to pay off outstanding debt. When ICE initially planned the IPO, European regulators instructed ICE to keep a minimum 25% stake in the company for at least three years after the public offering, unless it can find investors who can. ^[2] With the group of investors committing to hold the 33% stake for at least three years, ICE is no longer compelled to keep that stake.

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The Euronext IPO

Euronext NV operates stock markets in France, the Netherlands, Belgium and Portugal. Euronext shares will initially be traded in three of the markets in which it operates – Paris, Brussels and Amsterdam. It could also be listed in Lisbon by the fourth quarter. Additionally, Euronext has applied for approval to operate as Euronext London in the UK market. ^[3]

ICE said that ABN Amro, JPMorgan Chase (NYSE:JPM) and Societe Generale will act as joint global coordinators for the listing, and Goldman Sachs (NYSE:GS), ING and Morgan Stanley (NYSE:MS) will be the joint bookrunners. Additionally, BMO Capital Markets, BPI, BBVA, Espírito Santo Investment Bank, KBC Securities and Mitsubishi UFJ Securities will act as lead managers. ^[4]

What The IPO Means For ICE

The company intends to sell off the European equity market portion of Euronext, while keeping the Liffe derivatives business and the Liffe market platform in London. According to our estimates, derivatives trading constitutes over 60% of ICE’s value, whereas cash trading commissions and the listings business combined make up for only about 8% of the company’s value. ICE’s sale of the low-margin Euronext equity trading business is likely to help the company improve its overall margins as well as generate cash to pay back some of the debt raised for the NYSE Euronext acquisition last year. The company will be further benefited by cost synergies on its technology platform once Liffe completely migrates to ICE’s platform. ^[1]

Although ICE hasn’t disclosed how much of a stake it will keep in Euronext NV or at what price it will launch the IPO, but the company mentioned that the institutional investors will get a discount to the IPO price provided they commit to keep the shares for three years. According to news reports by Wall Street Journal, the French government made efforts to keep Euronext in French hands (at least partially) by pushing France-based investors and financial institutions to buy stakes. Moreover, the government reportedly loosened certain tax commitments on financial transactions to persuade some institutions that were initially reluctant to invest. ^[5]

We will restructure our model to reflect the changes once the IPO goes through and IntercontinentalExchange Group provides further details. Our $225 price estimate for the IntercontinetalExchange Group is currently 15% ahead of the market price.

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1. ICE Plans Euronext IPO Before Summer After Partial Sale, Bloomberg, May 2014 [↩] [↩]
2. Euronext Said To Plan Sale Of Up To 30% Stake Before IPO, Bloomberg, January 2014 [↩]
3. ICE To Sell Third Of Euronext To Institutions In Pan-European IPO, Financial Times, May 2014 [↩]
4. ICE To Launch Euronext IPO, HedgeWeek, May 2014 [↩]
5. ICE Plans Euronext IPO, Wall Street Journal, May 2014 [↩]