Putting Your Capital on ICE
Earlier Tuesday, NYX reported fourth-quarter earnings that beat analyst estimates after the company cut costs. Net income fell 75% to $28 million from $110 million a year earlier, the New York-based company said in a statement. Yet, these results don't really matter as they normally would.
That's because the price of NYX shares are tied to ICE, which reports Wednesday. The analyst consensus for ICE is a drop of 1 cent per share in quarterly year-over-year earnings and a 1.6% drop in revenue. That said, the mantra on the Street is "ICE is nice because ICE is twice," meaning its impending acquisition of NYX and all its plans and benefits.
One of those benefits will include the growing value of NYX between now and when ICE completes the takeover. In a Jan. 24 interview with the Wall Street Journal, NYX CEO Duncan Niederauer revealed plans to spin off its Euronext division.
Euronext is the European electronic stock-exchange business that operates markets in Paris, Amsterdam, Brussels and Lisbon. The spinoff was outlined as part of the $8.2 billion transaction announced last month between ICE and NYX. The spinoff has an important goal.
It will, according to the newspaper, help to "...allay potential concerns that exchanges managed from afar could diminish the influence of European financial hubs, hurting their ability to control jobs and other aspects of the business."
During its conference call, NYX reiterated something first mentioned in a Jan. 31 Wall Street Journal article, that a side deal NYX reached with ICE could prevent a competing bid from arising.
Under the deal, NYSE's European derivatives unit, known as Liffe, agreed to clear its trades through IntercontinentalExchange for at least two years, the newspaper reported, citing unnamed sources. The deal will remain valid regardless of whether the merger with IntercontinentalExchange closes.
The Euronext spinoff has whet the appetite of rivals including Nasdaq OMX (NDAQ) , which have made some informal inquiries about buying Euronext. The Journal article quoted Nasdaq CEO Robert Griefeld that he'd like to examine Euronext if it were put up for sale.
You're beginning to catch my drift. When a shareholder buys shares of either NYX or ICE they're getting, in essence, the benefits of all the lucrative parts of both companies. Let's take a look at how the stock prices of each have fared in the past year.
NYX data by YCharts
Both companies have had a lovely ride, especially in the last couple of months as the good news about the purchase of the bigger company by the smaller company has caused shares to percolate. Now let's look at the "kicker" that may especially benefit shareholders of NYX.