March 14, 2016 / 8:48 PM / a year ago

CORRECTED-DEALTALK-Exchange leaders to size each other up in Boca Raton

(Corrects paragraph 12 to say HKEx, not LSE, bought LME)

By John McCrank

NEW YORK, March 14 (Reuters) - When top derivatives exchange executives gather in Boca Raton, Florida, this week for a major industry conference, the buzz will be around who is meeting whom in hotel rooms and lobbies as bourses scramble to find partners amid global consolidation.

Waves of exchange tie-ups and attempted takeovers have happened every two or three years since exchanges began to go public in the 1990s, and this year has not disappointed.

Deutsche Boerse said late last month it may merge with the London Stock Exchange in a deal that would help it compete against larger rivals CME Group, Hong Kong Exchange and Intercontinental Exchange.

Deutsche Boerse Chief Executive Carsten Kengeter has said he has alternatives if the LSE deal fails.

As merger talks heat up, no one wants to get left behind in a business where scale, and geographical and cross-asset reach, can greatly improve profit margins.

"If the LSE-Deutsche Boerse talks were the start of the conversation, we've probably got another few more shoes that are going to drop in the next six months," said an executive from one exchange who declined to speak on the record because of the sensitive nature of deal talks.

An executive from another exchange said to expect two to three more deal announcements before the end of the year.

Right now, the focus is on LSE, with New York Stock Exchange owner ICE publicly mulling a rival bid. CME was also said to be considering its options, raising the prospect of a takeover battle.

In 2007, the sprawling, pink, palm tree-adorned Futures Industry Association conference hotel in Boca Raton was the backdrop to an attempt by ICE Chief Executive Jeff Sprecher to derail CME's bid for No. 2 U.S. futures market, CBOT Holdings.

ICE employees slipped copies of the exchange's $9.9 billion counter-offer letter under the hotel doors of CBOT's chairman and its CEO. Stacks of an accompanying press release were placed throughout the hotel. CME was forced to raise its offer to stave-off ICE.

This year, Sprecher is one of many exchange leaders on the attendee list for FIA Boca, which runs from Tuesday to Friday.

WHO'S LEFT TO DANCE?

Hong Kong Exchange CEO Charles Li, who is also listed as attending Boca, said on March 2 he was closely watching the LSE talks and that HKEx would look at any opportunities that would add value to its company. HKEx bought the London Metal Exchange in 2012 for $2.2 billion.

Also in Asia, Singapore Exchange said in late February it had made a bid for the London-based Baltic Exchange, the hub of the global shipping market. The Baltic Exchange said it has recently held talks with many suitors.

SGX attempted to buy Australian exchange operator ASX Ltd in 2011 for $8 billion, but the Australian government blocked the deal, saying a foreign takeover of ASX would not be in the country's interest.

That deal would not prevent ASX from buying SGX, however, both of which have market capitalizations of a little over $8 billion, sources said.

A potentially better consideration for ASX might be Canada's TMX Group Ltd, said Andre Cappon, president of financial services consultant CBM Group. "That would make a lot of sense because Australia and Canada are similar economies with mining and energy," he said.

LSE attempted to buy TMX in 2011 for $3.7 billion, but the bid fell apart amid nationalist concerns and a rival bid from a group of Canadian banks.

One recent deal that caught many by surprise was Nasdaq Inc's $1.1 billion acquisition of International Securities Exchange from Deutsche Boerse last week. Nasdaq said it would wring $300 million in cost savings from ISE through the integration.

Another exchange operator, CBOE Holdings, has long been a potential takeover target, but seen as expensive because of the premium placed on the proprietary products that trade on its platform. An acquirer may look at the Nadsaq-ISE deal and see even more potential for cost cuts from a CBOE tie-up, one of the exchange executive sources said.

Separately, BATS Global Markets, which merged with Direct Edge in 2013 to become the No. 2 U.S. stock exchange operator, is planning an initial public offering later this year, which could give it deeper pockets to strike more deals of its own. (Reporting by John McCrank; Editing by Steve Orlofsky)

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