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ICE Acquires Majority of APX-ENDEX - Analyst Blog
9/18/2012 6:35:00 PM
Extending its foothold in the rapidly developing energy space, IntercontinentalExchange Inc. ( ICE ) announced an alliance with Gasunie that offers gas infrastructure. Under this deal, both the entities jointly formed a new venture from the spot gas and derivative business of Amsterdam-based exchange - APX-ENDEX.
Accordingly, IntercontinentalExchange owns 79.12% in the derivatives and spot gas business of APX-ENDEX, while Gasunie holds a share similar to the ealier level, which is 20.88%. Prior to this business restructuring, TenneT owned 56.1% of APX-ENDEX, Gasunie held 20.9%, Elia had 20% and Fluxys owned 3%.
Although the value of the deal remains undisclosed, it will be funded by the excess cash of the company. The transaction is expected to culminate in the first quarter of 2013, subject to regulatory approvals.
Post the acquisition, APX-ENDEX will be reorganized and spun-off its business into two distinct units - one is a power spot and clearing business and the other is a derivatives and spot natural gas business.
Meanwhile, the gas business is located in Europe's leading natural gas trading hubs -around the Title Transfer Facility (TTF) Virtual Trading Point in the Netherlands. This business will also encompass the UK On-the-day Commodity Market (OCM) and the Belgian Zeebrugge Trading Point (ZTP), which is set to launch at the end of this month .
The acquisition of APX-ENDEX and expansion of the energy portfolio in Europe is another attempt by IntercontinentalExchange to evolve through its hedging strategies, product modification and innovation, thereby supporting volumes and the top-line growth in the long run. Allying with the leading Gasunie further helps IntercontinentalExchange achieve its aim of building a highly liquid and competent hedging and trading platform in the gas and power markets of Europe.
Additionally, the company already offers more than 730 cleared OTC energy contracts, including more than 640 new cleared OTC contracts since the launch of ICE Clear Europe in November 2008.
Such products incorporate transparency and risk-management features to the trading, which should help in gaining the confidence and attracting the untapped customer-base. We believe that the latest acquisition will further enhance IntercontinentalExchange's market retention capacity, also reflecting sound utilization of its capital.
Moreover, the outlay of its growth plan, earlier this year, by dominant players such as NYSE Euronext Inc. ( NYX ) and CME Group Inc. ( CME ) through acquisitions, setting up of clearinghouses along with new product and service initiations in the derivatives market, primarily focused on the expansion in Europe. Thus, IntercontinentalExchange's latest acquisition also blends well with the ongoing competitive growth strategy.
IntercontinentalExchange carries a Zacks Rank #3, which implies a short-term Hold rating, while the long-term recommendation stands at Neutral.
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