Majestic Research

Financial Times

Deutsche Börse Gains Foothold in Key US Derivatives Markets

By Norma Cohen in London and Anuj Gangahar in New York
Published: May 01, 2007

Eurex yesterday cemented its position as the world’s biggest derivatives exchange when its parent Deutsche Börse signed an agreement to acquire the New York-based International Securities Exchange.

The deal gives the German group the foothold in the key US derivatives markets it has sought for years. The expected price values the ISE at $2.8bn (£1.4bn), or $67.50 a share, a 48 per cent premium to Friday’s closing price.

Analysts gulped at the purchase price. “They appear to be offering a whacking great premium,” said Andrew Mitchell, analyst at Fox Pitt Kelton in London. Deutsche Börse shares rose 1.4 per cent to €172.55.

But the two groups said they expected $50m in synergies from efficiency gains and cross-selling opportunities.

The deal came as Deutsche Börse announced the appointment of Thomas Eichelmann, a Roland Berger consultant, as finance director.

The groups said the transaction formed the biggest transatlantic derivatives marketplace, a distinction sought by the New York Stock Exchange through its recent acquisition of Euronext and its Liffe derivatives business.

The ISE and Eurex—the derivatives subsidiary of Deutsche Börse and SWX, the Swiss exchange —said it would create the world leader in the trading of individual equity, equity index and interest rate derivatives worldwide with a combined overall trading volume of 2.1bn contracts this year. The move comes amid growing interest in the US market among European exchanges.

With six highly competitive options exchanges, consolidation appeared likely in the industry, analysts said. By buying the exchange with the biggest market share, Deutsche Börse might have achieved some first-mover advantage. However, some analysts said the strategic advantage might prompt further bids for the ISE.

Doug Atkin, chief executive of Majestic Research, a US consultant, said: “This deal makes a lot of sense for Deutsche Börse and we would not be surprised at all if another buyer steps in.”

Deutsche Börse was advised by Deutsche Bank and JPMorgan. ISE was advised by Evercore and Merrill Lynch.