Investor Relations

Deutsche Börse Sells ISE To Nasdaq For $1.1B

The purchase of ISE would give Nasdaq command of more than 40% of the market in options exchanges.
Katie Kuehner-HebertMarch 10, 2016
Deutsche Börse Sells ISE To Nasdaq For $1.1B

Deutsche Börse is offloading an operator of three U.S. equity options exchanges to Nasdaq, a move analysts say could boost the German exchange operator’s prospects in a proposed merger with London Stock Exchange (LSE).

Frankfurt-based Deutsche Börse on Wednesday said that it was selling International Securities Exchange Holdings, or ISE, and ISE’s holding company U.S. Exchange Holdings, to Nasdaq for $1.1 billion in cash.

The divestiture would enable Deutsche Börse to book a disposal gain in the high triple-digit millions of euros, after writing its purchase of ISE down continuously since acquiring it for $2.8 billion in 2007.

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“We are pursuing the goal to become the number one or two player in every business in which we operate,” Deutsche Börse chief executive Carsten Kengeter said in a press release. “This goal requires an active management of our business portfolio. In areas where we are not able to meet this goal, we are evaluating other options.”

The deal does not include ISE’s stake in No. 2 U.S. stock exchange operator BATS Global Markets or blockchain start-up Digital Asset Holdings, which would continue to be owned by Deutsche Börse.

Equinet analysts told Reuters that the exchange operator would have additional cash to increase its LSE offer in the event of a takeover battle for the British company.

U.K.’s The Times reported Wednesday that Deutsche Börse is closing in on a deal to merge with LSE within days, unless there is a counterbid from the United States. Intercontinental Exchange said this month that it might make a rival offer for LSE, according to Reuters.

Meanwhile, Nasdaq’s CEO Bob Greifeld told Reuters that the exchange operator’s purchase of ISE would give it command of more than 40% of the market, extending its lead as the number one U.S. options exchange operator.

Nasdaq plans to move ISE’s trading platforms onto Nasdaq technology. It said it could strip out $40 million of costs from the two businesses through the transaction. The deal would also give Nasdaq an additional 20% of The Options Clearing Corp., increasing its total stake in the equity derivatives clearing organization to 40%.

Keefe, Bruyette & Woods analyst Kyle K. Voigt said in a note that the deal should drive “some nice accretion” given the cost synergies that Nasdaq should be able to extract.

“However, we wouldn’t view the multiply-listed options business as particularly attractive at the moment given very competitive industry dynamics,” Voigt wrote. “ISE’s market share has been stable, but its revenues have fallen year-over-year for at least four of the past five years.”

Voight also said his team would have viewed the purchase price as “frothy” if had been on a standalone basis. However, the price is actually “relatively in line” with the analysts’ prior sale estimate multiples, considering the cost synergies that Nasdaq could likely extract in a short period of time after the deal closes, expected in the second half of 2016.