ICE Tender Strategy for NYSE Is to Get Ownership Cap Waived

Intercontinental Exchange Inc. will circumvent a barrier to its bid for NYSE Euronext by appealing to shareholders who can pressure their board to waive an ownership cap, said ICE Chief Executive Officer Jeff Sprecher.

“Ultimately that board is accountable to the shareholders next year,” Sprecher said in a telephone interview today. “Most directors don’t want to be fired or defend shareholder litigation outside the boardroom.”

Intercontinental and Nasdaq OMX Group Inc. approved a direct offer to acquire NYSE Euronext on May 2, formalizing their hostile bid for the biggest U.S. stock-exchange operator and taking it to shareholders. NYSE’s bylaws, mandated by the Securities and Exchange Commission, prevent investors from accumulating stakes of 20 percent or more in the company without board approval, limiting the usefulness of a tender offer.

“We will get a shareholder list and we will be able to put the facts of our deal on the table,” Sprecher said on a conference call today after ICE announced its quarterly results.

NYSE stock investors of record as of May 9 are eligible to vote on a competing merger offer from Deutsche Boerse AG, Sprecher said. NYSE management hadn’t previously disclosed the date, he said. “I suspect if a vote was held for the other offer today it would fail,” Sprecher said.

Circumventing Directors

Eric Ryan, a spokesman for NYSE Euronext, confirmed the timing. Ryan declined to comment on NYSE’s response to Intercontinental and Nasdaq.

The tender offer, designed to circumvent NYSE Euronext directors who have twice rejected the proposal, carries the same price as the original $11.3 billion bid announced April 1 by Nasdaq and Intercontinental. The New York Stock Exchange owner has said it prefers the February merger agreement with Deutsche Boerse, valued at about $9.53 billion.

Deutsche Boerse said in a May 2 filing with the SEC that it won’t increase its bid for NYSE Euronext, in which each NYSE Euronext share will be exchanged for 0.47 share of a new holding company. Deutsche Boerse equity is being swapped 1-for-1.

Any other measures to “enhance the financial position” of either shareholder group would have to get agreement from both sides, according to the document.

The two rejections and subsequent statements by NYSE management have misled shareholders, Sprecher said. “Much of it is inaccurate,” he said on the conference call. “We believe the board is the only obstacle to shareholders receiving a better deal.”

‘Good Idea’

Sprecher’s offer earlier this year capped 10 years of trying to woo NYSE’s Liffe futures market, he said today. From 2001 onward, he met several times with NYSE executives to propose a merger of his company and the London exchange where futures on interest rates, bonds and equity indexes trade. Under his plan, Intercontinental would have managed the merged exchange, which would have been jointly owned.

“I was never able to convince any of the various CEOs who oversaw the parent company over the years that that was a good idea,” he said.

Intercontinental would expand its European products through an acquisition of NYSE Euronext’s derivatives exchanges. Intercontinental specializes in energy and commodities trading, with its only offering in financial products coming from currencies and equity indexes at its New York-based ICE Futures U.S. exchange.

First-Quarter Profit

The deal would give Intercontinental trading in Euribor three-month futures. NYSE Liffe U.K.’s Euribor future was the fourth-largest interest-rate future in the world last year, according to the Futures Industry Association, a trade and lobbying group. Eurodollars traded at Chicago-based CME Group Inc., the world’s largest futures market, were the most-actively bought and sold interest-rate future in 2010, according to FIA.

Intercontinental’s first-quarter profit beat analyst estimates today on lowered costs and higher revenue. Net income climbed to $128.9 million, or $1.74 a share, from $101.2 million, or $1.36, a year earlier, the company said. Profit adjusted for acquisition-related costs was $1.77 a share. On that basis, it was forecast to earn $1.69 per share, according to the average estimate of 17 analysts surveyed by Bloomberg.

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