May 1 (Bloomberg) -- Eurex AG Chief Executive Officer Andreas Preuss rejected criticism by analysts that his company's $2.8 billion purchase of International Securities Exchange Holdings Inc. is too expensive.

``The overall deal structure, including its pricing, reflects a very thorough analysis, preparation and implementation,'' Preuss said during a press conference in New York today. ``We have entered into a very strong deal with a very strong partner.''

Eurex, which is owned by Deutsche Boerse AG and SWX Swiss Exchange, yesterday agreed to pay $67.50 in cash for each ISE share to create the largest trans-Atlantic derivatives market. The price is 41 percent more than the closing for ISE shares on April 27, the day prior to news reports of the deal.

Analysts at Man Securities Ltd., Sandler O'Neill & Partners LP and Keefe Bruyette & Woods Ltd. said today Deutsche Boerse may have paid too much for the ISE, the second-largest U.S. options exchange. While Deutsche Boerse doesn't need shareholder approval for the deal itself, the transaction would be financed through a restructuring plan investors in the Frankfurt-based company must approve. A meeting to consider the plan hasn't been scheduled.

``The price is too expensive as it fails to stack up in terms of return on invested capital,'' Man Securities' Mamoun Tazi wrote in a report, reducing his rating on Deutsche Boerse shares to ``neutral'' from ``buy.'' ``The ISE acquisition shows lack of financial discipline.''

Seeking Partners

Shares of Deutsche Boerse didn't trade in Frankfurt because financial markets were closed for the May 1 holiday. The stock rose 2.35 euros to 172.55 yesterday, bringing its advance for the year to 24 percent. ISE shares fell $1.08, or 1.6 percent, to $65.61 at 4 p.m. in composite trading on the New York Stock Exchange, after rising 46 percent yesterday.

Deutsche Boerse Chief Executive Officer Reto Francioni has been seeking merger partners since losing out to NYSE Group Inc. in a battle to buy Paris Euronext NV last year. With the ISE, Eurex will handle about 30 percent of single-stock derivatives traded world wide and about 27 percent of the equity-index based contracts that change hands, the company said today. Eurex is the largest European derivatives market, focusing on interest-rate futures contracts.

`The Best One'

The combined ISE-Eurex will reduce $15 million in annual expenses by sharing the costs of developing new contracts, the companies said. It plans to generate $35 million in annual revenue by making it easier for investors to trade securities listed in the U.S. and Europe.

The ISE also will continue to lease its trading system from Stockholm-based OMX AB and not shift to Eurex's platform, said the ISE' Chief Operating Officer Gary Katz.

``We continue to believe that that platform is the best one to use for that industry,'' Katz told analysts on a conference call today. ``The options market in the United States is one of the most challenging industries. OMX has done an outstanding job. We have no plans of changing.''

The cost reductions may not be completed until 2012, while the projected revenue increases are ``subject to a larger margin of error,'' wrote Michael Long, an analyst at Keefe, Bruyette & Woods in London, who has a ``market perform'' rating on Deutsche Boerse shares. ``There is certainly still a real risk that its shareholders could block the deal going through.''

Credit Concerns

Deutsche Boerse's plan to borrow about 1.5 billion euros ($2.04 billion) to finance the acquisition prompted Standard & Poor's to say it may lower its AA rating on the long-term credit of the German exchange. ``The group's financial leverage will increase and it will move to a net debt position,'' New York- based S&P said in a statement today.

During the conference call, analysts pressed Preuss on the rationale for the deal and asked whether shareholders had been consulted prior to the announcement. ``German law doesn't involve pre-consultation'' with shareholders, Preuss said.

``I've been in this industry for roughly 17 years. You understand we form our own views as to what represents value, and that's exactly the case here.'' he said. ``This is not just based on stand alone value, but also on the dynamics of synergies.''

Zurich-based Eurex may have tried to fend off other bidders with its $67.50-a-share offer and an $85 million break-up fee. The ISE has had talks with rivals about transactions over the past four years, CEO David Krell said today, declining to identify specific exchanges. A competing offer for ISE from NYSE Euronext can't be ruled out, Keefe Bruyette's Long said.

Thain's View

NYSE Euronext CEO John Thain declined to comment today when asked if the company would be interested in making a bid for the ISE. The ISE-Eurex won't affect the competitive position of NYSE Euronext because the deal doesn't seem to offer ``that many synergies,'' Thain said today at a conference in Baruch College in New York.

Sandler O'Neill analyst Richard Repetto said Deutsche Boerse paid about 33 times his 2008 earnings per share estimate, a ``high price'' given uncertainty in the in the options industry.

``While we acknowledge the superior performance of the ISE, we suspect Deutsche Boerse's unsuccessful track record in international acquisitions as well as the pressure to move globally given the NYSE Euronext's merger drove the steep price,'' said Repetto, who has a ``hold rating'' on ISE.

The Eurex deal requires approval from a majority of ISE shareholders as well as the U.S. Securities and Exchange Commission and the U.S. Justice Department's antitrust unit. No European regulators need to approve the deal, Preuss said today.

``We are confident that we will get SEC approval,'' the ISE's Krell said. ``This is the best transaction for our business, for our shareholders, and our customers.''

To contact the reporter on this story: Nandini Sukumar in London at nsukumar@bloomberg.net; Edgar Ortega in New York at ebarrales@bloomberg.net.

Last Updated: May 1, 2007 20:04 EDT