U.S. Divestment

Deutsche Börse’s Nasdaq Deal

Deutsche Boerse CEO Carsten Kengeter Source Alexander Heinl dpa
Carsten Kengeter, a former UBS and Goldman Sachs investment maker, still is a dealmaker.
  • Why it matters

    Why it matters

    Deutsche Börse could use the proceeds from the divestment to improve its offer for the London Stock Exchange, beating out U.S. rivals that are considering their own bid.

  • Facts


    • Deutsche Börse wants to merge with the London Stock Exchange in an all share transaction, likely creating the world’s second-largest bourse operator.
    • Atlanta-based Intercontinental Exchange, owner of NYSE, and the Chicago Mercantile Exchange could make a counterbid for LSE.
    • Deutsche Börse bought the U.S. options platform International Securities Exchange for $2.8 billion in 2007, but wrote down its value already in 2009 and 2010.
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Deutsche Börse, eyeing a merger with the London Stock Exchange, has agreed to sell its U.S. options platform International Securities Exchange for $1.1 billion to Nasdaq, exiting a market that has sharply lost value since the financial crisis and where it saw little chance of become a top player.

The sale of the U.S. operations, which Deutsche Börse bought for $2.8 billion in 2007, at the height of the financial boom, will also raise some much-needed additional cash. That could be used to improve an all-share transaction to merge with the London Stock Exchange and become the world’s second-largest trading house.

“One could conjecture that it wants to hoard cash to – when needed – raise or improve its offer,” said Dieter Hein, an analyst at research firm Fairesearch located near Frankfurt.

An improved offer might be necessary if rivals try to scupper the deal: Days after the Frankfurt-based bourse announced it was in merger talks with the LSE, Atlanta-based Intercontinental Exchange said it might make a counter offer for LSE, while Bloomberg reported last week the Chicago Mercantile Exchange was considering the same.

“Deutsche Börse could make a counterbid to the counterbid, which could contain a cash component.”

Dieter Hein, Analyst, Fairesearch

“Deutsche Börse could make a counterbid to the counterbid, which could contain a cash component,” Mr. Hein told Handelsblatt Global Edition.

In its statement on the sale of International Securities Exchange, Deutsche Börse did not make any reference to the London Stock Exchange.

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

Since Mr. Kengeter, a former investment banker with UBS and Goldman Sachs, took charge of Deutsche Börse in June, he has been busy restructuring the world’s fourth-largest exchange. During his first two months in office, he spent €1.4 billion on buying foreign exchange trading platform 360T and securities-indexing companies Stoxx and Indexium, and also announced an extensive cost-cutting program.

Deutsche Börse 2007 acquisition of International Securities Exchange, once a promising U.S. business, has not proven so beneficial: the German firm wrote down the U.S. firm’s value by a total €870 million, or $954, in the years 2009 and 2010, with the German firm citing stagnation in the U.S. equity options market and a revenue decline at ISE in 2009. The news agency Bloomberg had reported already back in 2014 that Deutsche Börse was considering selling the options firm.

Mr. Hein, the Fairesearch analyst, said the divestment of International Securities Exchange made sense strategically as it was not as successful as the German firm had hoped when it bought the U.S. options firm.

Warburg Research analyst Andreas Pläsier also welcomed the divestment of the U.S. options platform: “It is a very competitive market. The price is reasonable and it brings in a one-time high profit. The company could use the cash flow to reduce gross debts or other measures, such as a dividend and greater operational flexibility,” Mr. Pläsier told Handelsblatt Global Edition.


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Mr. Pläsier said he did not think the divestment was directly related to the merger plans with the London Stock Exchange, although it could help to get quicker regulatory approval in the United States for the LSE deal.

While ISE was not expected to spark any anti-trust concerns – there was little overlap between the divested business and LSE’s – selling the firm will give regulators one less thing to examine.

“It could speed up the process. By divesting the operations, U.S. authorities will not have to review this part of the merger,” Mr. Pläsier said.

Deutsche Börse’s stock traded up 0.4 percent at €75.18 at noon in Frankfurt, while shares of the London Stock Exchange rose 0.7 percent to 28.52 pounds, or $40.38.

Nasdaq’s deal to buy International Securities Exchange excludes Deutsche Börse’s stakes in Bats Global Markets and Digital Asset Holdings, the German company said.

The ISE transaction is subject to regulatory approval and is expected to be completed in the second half of 2016, Deutsche Börse said.


Gilbert Kreijger is an editor with Handelsblatt Global Edition in Berlin, covering companies and markets. To contact the author:  kreijger@handelsblatt.com

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