NYSE Euronext Profit Falls on Merger Costs, Exceeding Analyst Estimates

NYSE Euronext, which was prevented last week from merging with Deutsche Boerse AG (DB1) by European regulators, reported 19 percent drop in fourth-quarter profit after one-time charges related to the takeover and a French tax settlement. The shares rose as profit beat forecasts.

Net income fell to $110 million, or 43 cents a share, from $135 million, or 51 cents a share, a year earlier, the New York- based company said today in a statement. Excluding some items, earnings were 50 cents a share, exceeding the 48-cent average estimate of 16 analysts surveyed by Bloomberg. The company said costs in 2012 are expected to be lower than last year’s $1.66 billion.

“While the near-term outlook for trading volumes and currencies remains clouded, we are continuing to focus on those areas of our business model that we control,” Chief Financial Officer Michael Geltzeiler said. Our two-year plan “will drive higher levels of earnings per share growth through a combination of targeted revenue growth initiatives, accelerated cost efficiency efforts and disciplined deployment of capital.”

Standalone Strategy

NYSE Euronext (NYX), operator of the New York Stock Exchange, bourses in Paris, Lisbon, Brussels and Amsterdam and London- based Liffe, Europe’s second-largest derivatives market, is preparing to discuss its standalone strategy with shareholders after a year’s work on a merger with Deutsche Boerse. The shares fell 17 percent from Feb. 8, 2011, the day before the Deutsche Boerse deal was reported, through yesterday. That compares with the Bloomberg World Exchanges Index’s 8.8 percent drop.

NYSE Euronext rose 3.9 percent to $28.77 at 1:01 p.m. in New York trading today, the biggest gain in a month.

NYSE reported $46 million in one-time “merger expenses and exit costs” in the quarter, of which $38 million related to the failed Deutsche Boerse deal. The results also included a $25 million charge for a tax settlement with the French authorities over its BlueNext joint venture with Caisse des Depots.

Rejection by the European Commission means the executives need new ways to cut costs and expand after $37 billion in proposed industry takeovers failed in the last 15 months. NYSE will resume a buyback, focus on its clearing strategy for Europe and look for other merger opportunities, Chief Executive Officer Duncan Niederauer said on a conference call today.

Cost Savings

NYSE’s plans are “focused on accelerated cost savings, capital deployment and new revenue initiatives,” Alex Kramm, an exchange analyst at UBS AG in New York, said today. “We expect incremental cost initiatives to become a renewed area of focus for investors,” he said, adding that operating expenses of $416 million for the quarter were lower than his forecast.

Deutsche Boerse agreed to acquire its New York rival in a deal valued at $9.5 billion when it was announced last February. The Frankfurt-based exchange reports earnings next week.

The European Commission said the deal would have led to a “near-monopoly” in European exchange-traded derivatives and any savings would “not be substantial enough to outweigh the harm to customers caused by the merger.”

“It was an exciting year and I don’t regret what we tried to do for a second,” Niederauer said today. “Onwards and upwards from here. The deal is done. It’s behind us.”

Other Assets

After the merger with Deutsche Boerse was blocked by antitrust regulators last week, Niederauer said there are other assets available, such as LCH.Clearnet Group Ltd. and the London Metal Exchange.

“As far as LCH goes, I think it’s fair to say we’d obviously be very interested in what happens,” Niederauer said today. “We own nearly 10 percent of the company. We have a board seat and we’re the enterprise’s largest customer. We think that the company has a great deal of potential under Ian Axe’s leadership.”

NYSE Euronext’s priority is now in post-trade services, he said. The exchange has a contract through 2013 with LCH.Clearnet for equity clearing and has started work again on its derivatives-clearing and over-the-counter strategy, he said.

Shifting Landscape

“Given the shifting landscape and the clients need for capital efficiency, I think it would be foolish for us not to consider any and all forward alliances that might make sense between various exchanges and clearing organizations,” Niederauer said.

LCH.Clearnet is in exclusive takeover talks with London Stock Exchange Group Plc. The London-based clearinghouse reported an 11 percent increase in full-year profit today.

“We are always willing to take calls,” LCH.Clearnet Chief Executive Officer Ian Axe said today when asked about approaches from other companies.

On Feb. 1, Nasdaq OMX Group Inc., the second-largest U.S. equity exchange operator, posted fourth-quarter earnings that beat analyst estimates as revenue climbed and the company bought back $100 million in shares. Earnings were 63 cents a share excluding some items such as debt refinancing and a charge for an investment in Dubai Financial Market, exceeding the 61-cent average estimate of 19 analysts surveyed by Bloomberg.

To contact the reporter on this story: Nandini Sukumar in London at nsukumar@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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