) share price rose after it was edged out by Hong Kong Exchanges
& Clearing Ltd. ("HKEC") in the takeover bid for the 135-year
old London Metal Exchange ("LME"). In contrast, HKEC's share prices
fell 4.2% to close at $13.70.
Investors were bullish on IntercontinentalExchange stock as the
company may now focus on increasing shareholder value in a number
of ways. Moreover, losing the bid is favorable for the company's
financials as it would have raised its total debt. Its total debt
currently stands at $875 million with a debt-to-equity ratio of
With cash and cash equivalents of $968 million in its books,
IntercontinentalExchange can also focus on unburdening some of its
debt and strengthening its balance sheet. Its interest coverage
ratio, which is pegged at 24.86% (trailing 12-month), will also
improve if it reduces its debt obligations as it would have to pay
lesser interest to service the borrowings.
However, a successful takeover of LME would have benefited
IntercontinentalExchange in numerous ways as well. It would have
enhanced the company's operations to a great extent and paved the
way for a stiffer competition with its arch rival
CME Group Inc.
), which presently retains the leadership position in the world of
commodity futures exchanges. Last month, it was eliminated from the
race to acquire LME, leaving HKEC and IntercontinentalExchange as
the final contenders.
The buyout for LME, the exchange that pioneers in setting
benchmark prices for six base metals, was settled for an outrageous
amount of $2.16 billion. After winning the bid HKEC announced that
it could assist LME in receiving approval for opening warehouses in
China as it has greater access to the Chinese markets. Its
relations with China helped it to sweep away the deal from
We retain our long-term Neutral recommendation on
IntercontinentalExchange. It also has a quantitative Zacks #3 Rank,
which translates into a short-term Hold rating.
CME GROUP INC (CME): Free Stock Analysis Report
INTERCONTINENTL (ICE): Free Stock Analysis
To read this article on Zacks.com click here.