IntercontinentalExchange (NYSE: ICE), a leading operator of global derivatives exchanges and over-the-counter (OTC) markets, today announced that it has entered into a definitive merger agreement to acquire Creditex Group Inc. (Creditex), a credit market leader and innovator in the execution and processing of credit default swaps (CDS) with markets spanning the U.S., Europe and Asia. Creditex is a leader in the most liquid segments of the CDS market including CDS indexes, single-names and standardized tranches.
The transaction consideration will total $625 million comprising approximately $565 million in ICE common stock and $60 million in cash, as well as a working capital adjustment to be finalized at closing. Approximately $50 million of the cash component is intended to provide some liquidity to employees that hold Creditex stock, and the remaining cash will be provided to unaccredited Creditex shareholders in lieu of shares of ICE common stock. Upon the closing of the transaction, expected during late third quarter 2008, Creditex Group will be a wholly-owned subsidiary of ICE, operating under the Creditex name.
"We are pleased to announce this exciting strategic combination and for the opportunity to serve the interdealer CDS market by joining with an established market leader," said ICE’s chairman and ceo Jeffrey C. Sprecher. "We believe that together we can meet the demand for enhanced operational and risk management tools required by dealers and their clients today. The credit derivatives sector is one of the largest segments of the OTC market, and we expect that the highly regarded team at Creditex will continue to lead with innovative solutions to ensure that liquidity and risk management tools evolve with these markets."
"We are very excited about this transaction and look forward to the opportunities ahead in strengthening our position as a leader in CDS by partnering with ICE," said Creditex’s chairman and ceo Sunil Hirani. "Our companies have common origins in supporting dealers by providing the key infrastructure required to grow their businesses. ICE clearly represents the best fit in terms of innovation, global relationships and a culture of growth, as well as having the complementary ability to meet the execution and processing needs of our dealer clients in the fast-growing CDS markets. Creditex’s products and services, together with ICE’s management team, range of OTC expertise, and post-trade infrastructure, will enhance our CDS offering to best meet the needs of our clients in this expanding marketplace."
The transaction is expected to be accretive in 12 to 18 months from closing. Based on recent results and expected synergies, the transaction would yield $9 million to $14 million in total pretax synergies in 2009, comprising incremental revenues and expenses.
In addition to accretion and synergies, the transaction benefits are expected to include:
— Revenue growth and diversification: ICE will offer OTC execution
services to the $60 trillion market for credit derivatives, which is
one of the largest and fastest growing OTC markets today. As a leading
CDS execution platform, Creditex employs a hybrid model that combines a
leading brokerage team with a liquid electronic CDS platform. ICE will
benefit from Creditex’s strong revenue growth as well as from the
diversification of ICE revenues into the CDS markets.
— Expansion into new OTC markets: ICE sees significant additional
opportunities for expansion of Creditex’s successful OTC trading model
to other interdealer OTC markets beyond credit derivatives. Creditex’s
technology platform already supports a range of OTC asset classes and
its proprietary block-trading technology can be applied to other
markets where dealers require efficient, anonymous execution in large
notional amounts.
— Addresses calls for improved OTC infrastructure: This combination
positions the company to help address recent calls by the Operations
Management Group (OMG), the President’s Working Group, U.S. Treasury
Secretary Henry Paulson and industry participants for improvements in
the operational infrastructure of the OTC markets. In the credit
derivatives space, ICE’s significant post-trade assets will provide
additional resources to expand the already widely adopted T-Zero
platform. The transaction combines expertise from both T-Zero and ICE’s
successful eConfirm energy processing platform, positioning ICE to
provide the robust, cross-asset class processing services needed for
market scalability.
— Revenue and expense synergies: The acquisition is expected to
facilitate continued growth in the popular CDS products, combine two
significant post-trade service offerings and leverage Creditex’s
expertise in successful product development for the CDS market. The
companies have identified expense synergies in a number of operational
areas and expect incremental revenue synergies through new product and
services offerings.
Agreement Terms and Company Structure
Under terms of the merger agreement, Creditex will become a wholly-owned subsidiary of ICE. ICE has invited senior Creditex management to continue with the combined company. ICE expects to finance the cash portion of the merger consideration with cash on hand. The number of shares of ICE common stock expected to be issued pursuant to the merger agreement will represent approximately 6% of the issued and outstanding share capital of ICE following the consummation of the merger. ICE has agreed to file a registration statement to allow non-employee stockholders to resell the shares of ICE common stock they receive in the merger.
The transaction is subject to the receipt of required government approvals, including the expiration of the applicable Hart-Scott-Rodino waiting period, the receipt of U.K. Financial Services Authority (FSA) approval and other regulatory approvals. Evercore Group L.L.C. was the exclusive financial advisor and Goodwin Procter LLP served as the legal advisor to Creditex. Morgan Stanley advised ICE on the transaction and Sullivan & Cromwell LLP served as ICE’s legal advisor.
