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Banks UK IntercontinentalExchange Inc Climate Exchange
AlertEmailPrintShare By Steve Goldstein, MarketWatch
LONDON (MarketWatch) — The IntercontinentalExchange on Friday made a bet on the future of emissions trading after reaching a deal to pay around $600 million in cash for the London-based Climate Exchange.
The Atlanta-based ICE had already cleared trades for Climate Exchange, which operates the European Climate Exchange, the Chicago Climate Exchange and the Chicago Climate Futures Exchange.
Terms call for ICE (ICE 116.63, -2.19, -1.84%) to pay 7.50 pounds a share, valuing Climate Exchange (UK:CLE 742.50, +264.50, +55.33%) at 395 million pounds ($604 million), a premium of 57% to Thursday’s closing price and a 44% premium on the average price over the last three months.
CLE 742.50, +264.50, +55.33%
The deal will “slightly” hurt ICE’s earnings for the remainder of the year before increasing them in 2011.
Climate Exchange shares surged 55.9% to 7.45 pounds on the London Stock Exchange.
Including its own 4.8% stake, ICE has already locked up acceptances from investors holding 53.5% of the Climate Exchange.
“The combination of Climate Exchange’s emissions markets and ICE’s futures and over-the-counter energy markets is an important and logical strategic combination for our customers and shareholders, and clearly an exciting opportunity for ICE to grow and further diversify our revenues,” said ICE Chairman and CEO Jeffrey Sprecher.
“The leadership that Climate Exchange has shown in establishing market standards in Europe, and increasingly the U.S. and Asia, has driven its success, and we see continued growth opportunities within these nascent markets globally.”
The Climate Exchange is the market leader in the world’s largest cap-and-trade market, the European Union, and also has a “significant” share of the main contracts in the U.S.
The ICE however is paying up for the Climate Exchange’s potential — the deal is valued at 58 times Climate Exchange’s adjusted pretax profit for 2009.
Emissions trading legislation has stalled in the U.S. Senate, and the United Nations climate change conference in Copenhagen produced few tangible results.
Chris Allen, an analyst at Ticonderoga Securities, called the deal a “reasonable long-term bet.”
“Given that the future of emissions trading is dependent on new laws to reduce emissions trading, which look a few years away, this is clearly a long-term bet for ICE. Although it is hard to define the potential size of the emissions market longer-term, we believe that it clearly represents a long-term growth opportunity and is a market that should provide long-term synergies with ICE’s core energy platform,” he said in a note to clients.
Morgan Stanley advised ICE, while J.P. Morgan Cazenove and Kinmont advised Climate Exchange.
Steve Goldstein is MarketWatch’s London bureau chief.