Analysts Divided Over Potential Bidding War for BME: Street Wrap

(Bloomberg) -- Shares of Bolsas y Mercados Espanoles SA soared the most on record after two European competitors confirmed earlier this morning they are interested in buying the Madrid-based exchange. Analysts were split on whether a bidding war will ensue.

Euronext said it is in talks with BME which could lead to an offer, while just minutes later SIX Swiss Exchange AG launched a bid of 34 euros a share for all of BME’s stock, a 34% premium to BME’s closing price on Friday. Speculation around an Euronext offer has mounted in the recent months, while the SIX approach came as a surprise for investors.

BME shares jumped as much as 40%, propelling gains for other exchanges, with the Stoxx 600 Financial Services Index rising 0.7% to be among the best performing industry groups in the region. Euronext traded 1.3% higher at 12:29 p.m. in Paris.

Here’s what market participants are saying about BME, Euronext and SIX:

Citi

• Priced offered by SIX is compelling for BME, it’s well-above historical trading multiple of Spanish stock exchange
• SIX would become third-largest financial market infrastructure group in Europe by revenue; deal would enable SIX to offer EU trading, clearing, CSD solutions
• Euronext doesn’t have firepower to match SIX offer, would need to issue equity or do a share swap, making a counteroffer unlikely

Alantra, Alvaro Lenze

• A bidding war between SIX and Euronext is probable; BME is a better fit with Euronext, synergy generation also greater
• Euronext should be able to outbid SIX as BME is “last relevant independent stock market in Europe”
• BME’s appeal has improved over past few months as market share stabilizes, regulatory changes are already in place and volumes are at cyclically low levels in both Europe and Spain; BME is one of the few independent assets in the European market and trades at a significant discount

Bloomberg Intelligence, Georgi Gunchev

• “A potential bidding war for Spanish exchange BME between Euronext and SIX is a concern, given the limited diversification it could bring and a risk of overpayment”

Dunas Capital, Alfonso Benito

• Euronext buying BME is a logical deal as BME is one of few good operators left in Europe, it’s a healthy company that would fit into Euronext
• Stock operations need volume, so it’s logical that Euronext wants to expand, while BME is in a difficult position with trading volume declining

Atlas Capital, Ignacio Cantos

• The sector is going through a consolidation process and BME hasn’t participated so far, so it could be expected that players would be interested in the Spanish company
• It remains to be seen what happens with competition, if the final deal is with SIX there shouldn’t be a problem, while a merger with Euronext may raise some competition issues
• For the Spanish market, losing BME as a Madrid-based company shouldn’t be a problem since nowadays trading is global and it doesn’t matter where the operator is located

A&G Banca Privada, Gonzalo Lardies

• SIX offer at EU34/share looks good as BME has been in a difficult situation in last few years, with volumes down and management not taking efficient steps toward improving the business
• It looks like the market is pricing in a bidding war, with the shares soaring above SIX offer; it would make sense as consolidation in Europe is a clear trend and BME is an option
• A BME deal has been long expected and it shows that organic growth in some sectors is very difficult

READ: Bankinter Recommends BME Shareholders Accept SIX Offer

--With assistance from Michael Msika.

To contact the reporter on this story: Macarena Munoz in Madrid at mmunoz39@bloomberg.net

To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, Monica Houston-Waesch, Jon Menon

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