In order to contribute to the fast-expanding global carbon market, on Thursday, IntercontinentalExchange Inc. (ICE: 106.94 +0.30 +0.28%) completed the acquisition of UK-based Climate Exchange plc (CLE.L) worth approximately GBP395 million ($597 million).The deal was announced on April 30, wherein it was decided that Climate Exchange shareholders will receive GBP7.50 in cash in exchange of each Climate Exchange share. The transaction consideration included $377 million from ICE’s existing cash resources and $220 million from ICE’s existing credit facilities.
Climate Exchange is a leader in the global emissions markets, and following the acquisition, it has become the wholly owned subsidiary of IntercontinentalExchange, operating under Climate Exchange’s respective brand names. Further, the founder of Climate Exchange, Dr. Richard Sandor, will now play an advisory role in ICE.
IntercontinentalExchange had been sharing a long, innovative and productive partnership with Climate Exchange’s businesses. Climate Exchange is structured into three core businesses: European Climate Exchange (“ECX”), Chicago Climate Futures Exchange (“CCFE”) and Chicago Climate Exchange (“CCX”). IntercontinentalExchange has provided the electronic trading platform for CCX and CCFE since their launch in 2003 and 2004, respectively.
In 2005, IntercontinentalExchange and Climate Exchange co-developed and launched ECX and, in 2008, ICE transitioned clearing for all ICE Futures Europe and ECX to ICE Clear Europe. In March 2009, the company acquired The Clearing Corporation, which is the clearing house for CCFE.
With the acquisition of Climate Exchange, IntercontinentalExchange will be able to hold its footprint in technology, clearing and operations field, thereby, saving costs and increasing efficiencies; and enjoy productive leverages globally. It will also boost its capital and diversify ICE products by way of increasing scale of operations, distribution and cross-selling opportunities.
Financial Costs and Accretions
The buyout of Climate Exchange will involve transaction costs of approximately $1 million to $2 million in the second quarter and $6 million to $7 million in the third quarter of 2010 for ICE. This will impact the GAAP earnings results, but will be accretive to earnings in 2011, with negligible dilution for the remainder of 2010.
In addition, ICE will absorb a loss of $14 million, in the second quarter of 2010, due to foreign exchange devaluation.
Our Take
We believe that the buyout will provide positive synergies to both the companies with ICE gaining a solid foothold in the carbon emissions market. Further, we are optimistic that the combination of Climate Exchange’s emissions markets and ICE’s futures and OTC energy markets will play an important role in growing and further diversifying ICE’s revenues.
However, the companies might face few integration challenges, as they have worked closely together for several years and that Climate Exchange already operates ICE’s trading platform technology.
Additionally, ICE and Climate Exchange will have to fight for the control of the global carbon market with the presence of other peers such as CME Group Inc. (CME) and its Green Exchange subsidiary, as well as specialist carbon spot exchange Bluenext.
Financial Costs and Accretions
The buyout of Climate Exchange will involve transaction costs of approximately $1 million to $2 million in the second quarter and $6 million to $7 million in the third quarter of 2010 for ICE. This will impact the GAAP earnings results, but will be accretive to earnings in 2011, with negligible dilution for the remainder of 2010.
In addition, ICE will absorb a loss of $14 million, in the second quarter of 2010, due to foreign exchange devaluation.
Our Take
We believe that the buyout will provide positive synergies to both the companies with ICE gaining a solid foothold in the carbon emissions market. Further, we are optimistic that the combination of Climate Exchange’s emissions markets and ICE’s futures and OTC energy markets will play an important role in growing and further diversifying ICE’s revenues.
However, the companies might face few integration challenges, as they have worked closely together for several years and that Climate Exchange already operates ICE’s trading platform technology.
Additionally, ICE and Climate Exchange will have to fight for the control of the global carbon market with the presence of other peers such as CME Group Inc. (CME) and its Green Exchange subsidiary, as well as specialist carbon spot exchange Bluenext. | Analysts' Targets | |
| JMP Securities LLC | $120 |
| Mkt Outperform | |
| Monday, May 17, 2010 | |
| UBS Securities | $143 |
| Buy | |
| Thursday, May 06, 2010 | |
| Stifel Nicolaus | $135 |
| Buy | |
| Monday, April 12, 2010 | |
| Deutsche Bank Securities | $113 |
| Buy | |
| Monday, January 25, 2010 | |
| Barclays Capital | $115 |
| Equal-Weight | |
| Thursday, January 14, 2010 | |
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