NYSE Projected to Exceed ICE’s Profit Next Year
March 21, 2013
The operator of the New York Stock Exchange is projecting that its profits will exceed those of the company acquiring it, Intercontinental Exchange, in a merger document filed Thursday with the Securities and Exchange Commission.
NYSE Euronext is forecasting that its net income will surge roughly 40% a year for the next two years, reaching $719 million in 2014.
If achieved, that would mean its profits would top those of the company that has agreed to acquire it for $8.2 billion: Intercontinental Exchange.
The Atlanta-based operator of derivatives markets and clearing services is forecasting growth of about 11% a year in its bottom line. Its net income will come in at somewhere between $684 million and $703 million in 2014, by its estimation made in a 366-page S-4 filing with the SEC.
The forecasts do not mean NYSE Euronext is more profitable than ICE, dollar for dollar. Intercontinental Exchange is a much smaller company. Its total revenue in 2012 was $1.4 billion, with a net profit of $561.7 million.
By comparison, NYSE Euronext, which operates exchanges on two continents, recorded $3.7 billion in revenue in 2012. But its net income was $365.0 million, 35% less than that of ICE.
Neither ICE nor NYSE immediately would comment on the forecasts they included in the document supporting special shareholder meetings they will call to ratify their merger or have it rejected by their owners.
But a large part of the $354 million gain on the bottom line that NYSE Euronext is projecting may derive from the $250 million cost savings programs called Project 14 that it launched in April of last year, noted Richard H. Repetto, principal at Sandler O’Neill and Partners.
The savings break down this way, according to NYSE Euronext’s Project 14 plan:
- $90 million, from technology. This will come from retiring old systems and creating more “harmonized” and standard systems, across businesses. Operations of data centers also will be reviewed and streamlined.
- $90 million, from efficiency. The firm will centralize market operations and expand shared services. Contractor relations will be rationalized, organizations streamlined.
- $70 million, from “business optimization.” Businesses owned and held will be rationalized. Risk management in the United Kingdom will be brought in-house. Real estate holdings will be re-evaluated.
Project 14 is expected to deliver $250 million annualized cost savings by 2014.
But that doesn’t necessarily account for the overall profit gain. After the turn of the year, NYSE Euronext chief executive Duncan Niederauer noted "slight signs of improvement'' in daily volume of trading in U.S. equities and options and "dramatic increase in fixed-income derivatives volumes.''
Nor are the projections guarantees, as Repetto noted Thursday afternoon.
“These are forecasts,’’ he said. “They don’t have to be right, either.’’
