Battle for Madrid Bourse Erupts; SIX Bids, Euronext in Talks
Euronext Chief Executive Officer Stephane Boujnah has been on the hunt for deals to build scale and enter new markets.
(Bloomberg) --
A battle for the Madrid stock exchange erupted as Switzerland’s SIX Group AG announced a 2.8 billion-euro ($3.1 billion) takeover bid, minutes after Euronext NV confirmed its own interest.
Switzerland’s dominant exchange said Monday that its proposal for Bolsas y Mercados Espanoles SA would create the third-largest European operator of financial market infrastructure. Its all-cash offer -- a third higher than BME’s closing price last week -- won a positive nod from the target’s management.
That puts the ball in Euronext’s court. The owner of the Paris and Amsterdam exchanges said it was in talks with the Spanish firm’s board as Chief Executive Officer Stephane Boujnah hunts for deals to build scale and enter new markets. He most recently won a fight with Nasdaq Inc. for the Oslo exchange, and the Madrid bourse is one of the few substantial independent exchanges remaining in Europe.
While M&A among exchanges has been driven by cutting costs and gaining access to lucrative data businesses, there have been political and regulatory dimensions to some deals. The European Union attempted to force investors based in the bloc to trade inside its borders and not use SIX, and Switzerland retaliated by blocking trading of Swiss stocks in the EU. That prompted talk that buying an EU-based exchange could be a solution for the company.
“The premium SIX has offered is quite high,” said Matthias de Wit, an analyst at Kempen & Co. “I hope Euronext will stay disciplined and not outbid SIX to acquire BME, as I consider the valuation quite punchy.”
Shares Soar
BME shares jumped 38% in Madrid, the most on record, surpassing SIX’s offer price of 34 euros per share. Euronext climbed 1% in Paris, bringing its surge this year to 44%. SIX is closely held by a group of large Swiss banks.
Buying BME would be “sound strategic logic” for Euronext unless it paid more than 40 euros per share, according to Andrew Coombs, an analyst at Citigroup Inc. The bank had previously called BME its least preferred exchange stock, given its limited prospects for growth.
BME described SIX’s offer as “amicable” and reflective of its value, and agreed to a break fee of 0.5% of the ultimate transaction price, equivalent to 14 million euros with the current bid. However, it previously confirmed what it called “preliminary talks” with Euronext and said that no decision had been taken on that approach.
Euronext thinks it’s in a good position given Switzerland’s uncertain regulatory relationship with the EU, and will decide this week if it wants to match or beat SIX’s bid, according to a person familiar with the situation. It could offer a choice between cash or shares, aiming to appeal to shareholders who want to maintain an investment in an exchange, the person said, requesting anonymity to discuss private deliberations.
EU Battle
In August, people familiar with the matter said the Spanish exchange was a potential target for SIX in case the EU’s dispute with the Swiss endured or escalated. In Monday’s statement, SIX Chairman Romeo Lacher said the deal aimed to provide “seamless access to capital markets,” and BME said SIX’s plan was to use the Spanish firm as a platform to grow in the EU.
However, SIX CEO Jos Dijsselhof said on a call that the bid was unrelated to the EU dispute and unlikely to affect it, and that his firm didn’t consider buying a different exchange. He said there’s a trend for exchanges to diversify their business mix.
“Trading in Swiss shares will stay in Switzerland now and forever,” Dijsselhof said, when asked whether the BME exchange would be used to allow EU investors more access to Swiss shares via that platform.
Still, some observers were skeptical that the spat with the EU wasn’t a factor. The surprise offer is a dramatic reversal of course; just three months ago, SIX said it saw “no need to buy a stock exchange in the EU.”
“For the Swiss, the showdown about equivalence means having a foothold within the EU is important, and I would expect that to be their number one trigger,” said Niki Beattie, the founder of Market Structure Partners, a consultancy in London. “For Euronext, it’s part of their mission to grow the exchange across Europe. I expect they have simply gone on the offensive as they don’t want to see BME taken off the table.”
After hearing speculation SIX was considering an offer, Boujnah made a hastily convened trip to Madrid on Saturday to meet with executives at BME, and discussed governance and regulatory issues, the person familiar with Euronext’s plans said.
People familiar with the matter told Bloomberg News earlier this month that Euronext was considering both the Spanish exchange and Italy’s Borsa Italiana as targets. That prompted Boujnah to say at the time that there was “no substance whatsoever” and that no dialogue had taken place with either bourse.
Dealmaking in the exchange sector has gathered pace. Besides Euronext’s months-long battle for the Oslo exchange earlier this year, Hong Kong Exchanges & Clearing Ltd. abandoned its 29.6 billion-pound ($38 billion) bid for London Stock Exchange Group Plc after failing to win over investors.
Corporacion Financiera Alba SA, whose 12.1% stake makes it BME’s largest shareholder, said it won’t yet comment on the bids.
Morgan Stanley is advising BME. Credit Suisse advised SIX and is providing the Swiss firm with a bridge loan. SIX was also advised by Alantra Partners SA, a Spanish investment bank.
--With assistance from Charlie Devereux.
To contact the reporters on this story: Patrick Winters in Zurich at pwinters3@bloomberg.net;Marion Halftermeyer in Zurich at mhalftermeye@bloomberg.net;Viren Vaghela in London at vvaghela1@bloomberg.net
To contact the editors responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net, Keith Campbell
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