By Harvey George, Surya Kongara, Ikjyot Anand and Karthik Neelamegam (LSE) - Date: 02/02/2019
Overview of the deal
Acquirer: Euronext N.V.
Target: Oslo Bors VPS Holding ASA
Estimated value: €625 mn
Announcement date: 14th January 2019
Acquirer Advisor: -
Target Advisor: Arctic Securities
Before launching their €625 mn bid for the company, Euronext held a 5.3% stake in Oslo Bors. Now, after, they have agreements to purchase 50% of outstanding shares at NKR 145 (~€14.8) per share which represents a healthy 32% premium. The cash tender offer (offering to buy shares directly from shareholders) values the Norwegian-based exchange at €625mn. To entice shareholders to pledge their shares to Euronext, the company is also offering a 6% interest rate between acceptance and deal closure to try and close the deal as quickly as possible by getting early deal acceptance.
Caught in surprise by the tender offer, Oslo Bors’ board of directors have urged its shareholders to wait for its recommendation by late February, which Norwegian bank DNB and insurance company KLP, who represent 30% of share holdings, have said they will follow. A higher bid has actually come (30th Jan) from Nasdaq, the large exchange operator, which values the company at €677 mn, but it is unclear what will happen to ownership as Euronext have stated that the commitments of shareholders to tender their holdings are irrevocable.
With €650mn to spend on acquisitions from existing cash and potential debt capacity, and with total capacity to spend around €1bn, Euronext aims to continue their strategy of bolt-on acquisitions to diversify revenue away from shares and derivatives trading. However, Euronext has found it difficult to grow externally (i.e purchase exchanges) as many market operators already belong to London Stock Exchange Group, Nasdaq Inc. or their shareholders wish to remain independent. Although Stephane Boujnah, Euronext’s CEO, aims to grow the company in the medium-term, he has said that the company will shy away from paying expensive multiples.
“It is crucial for us to have a complete picture of how a potential new owner will contribute in developing Oslo Stock Exchange as a suitable market place for Norwegian companies, both large, medium and small." - Insurance Company KLP
Company details (Euronext)
Euronext is a pan-European stock exchange operator with markets in Belgium, France, the Netherlands, Portugal and the UK. They offer cash and derivatives markets in addition to equities and ETF platforms.
- Founded in 2000, headquarters: Amsterdam, Netherlands
- President and CEO: Stéphane Boujnah
- Number of employees: 671
- Market Cap: €3.57bn EV: €3.77bn
- LTM Revenue: €595mn LTM EBITDA: € 333mn
- LTM EV/Revenue: 6.3x LTM EV/EBITDA: 11.3x
Company details (Oslo Bors)
Oslo Bors VPS Holding operates the Oslo Stock Exchange, the only independent stock exchange within the Nordic countries and offering Norway’s sole regulated market for securities trading. Oslo Bors is dominant in seafood derivatives and has significant expertise in oil services and shipping.
- Founded in 2001, headquarters: Oslo, Norway
- President and CEO: Bente Landsnes
- Number of employees: 244
- Market Cap: €652mn EV: €599mn
- LTM Revenue: €111mn LTM EBITDA: €51mn
- LTM EV/Revenue: 5.4x LTM EV/EBITDA: 11.8x
Projections and Assumptions
Short term consequences
If the bid proves successful then we will see the transfer of Euronext’s commodities business to Oslo, which covers its corn, milling wheat and rapeseed futures. Euronext also plans to transfer Oslo Bors’ key technology, such as the Millennium Exchange trading system, onto their platform. The technology is expected to make Euronext’s platform more efficient and to allow for multiple markets on the same platform - providing flexibility for future changes in capacity and enhancement to response times.
Furthermore, this acquisition would result in the two exchanges merging their data and audiences together, creating an extensive pan-European market data offering. While these digital migrations would incur short-term costs, the savings as a result of the increased efficiency are likely to be significant. However, it should be noted that the potential cost savings of this acquisition have not been formally specified by either party as Euronext has not been given access to Oslo Bors’ books.
Through the acquisition Euronext will increase their product range, adding world-leading seafood derivatives, oil services and shipping markets. Further, it has the opportunity to increase revenue through the centralisation of product offerings. Increased ease of product access may lead to market share increases as market participants are attracted to the broad range of products available on Euronext. This should also help Euronext diversify away from cash trading, which currently represents around a third of its revenues. Nevertheless, it is unlikely that this acquisition will be the solution to Euronext’s considerable dependence on equities trading due to the sheer contrast in volumes between equities and specialised derivatives markets.
Long term upsides
The Amsterdam-headquartered group claims that they intend to be “fully committed” to developing both the Norwegian stock exchange and the wider financial ecosystem within the Nordic country. In relation to this commitment, Euronext aims to leverage its capabilities to help raise Oslo Bors’ status within the Nordic region to that of a leading capital markets hub. Euronext also hopes to secure Oslo Bors’ status as being Norway’s national central securities depository by focusing on investing in technology, pursuing operational independence and continuing local supervision and regulation.
Euronext plans to invite Oslo Bors’ CEO to join their Managing Board not only as a country CEO for Norway but also as a member with group-wide responsibilities for commodities, which will ultimately place Oslo Bors as the group’s “centre of excellence” for any commodities-related activities. Furthermore, the addition of a prominent leader in the Norwegian financial ecosystem is likely, helping diversify the interests of management geographically and promoting progress to achieve their goal of a pan-European marketplace.
This acquisition bodes well for Euronext’s future in an industry going through consolidation due to increased pressure from shareholders to increase profits while trading quantities have been smaller due to lower market volatility. With antitrust regulators blocking large mergers, which aim to gain economies of scale in transactional costs, exchange operators, like Euronext, have relied on the creation of high-margin revenue streams such as data-provision to increase profits. However, frustration over the high prices of services has led to the formation of the Members Exchange (MEMX), a new US stock market backed by the likes of UBS, BAML and Morgan Stanley. This disruption could prompt incumbent firms to slow down price hikes for their services.
Risks and Uncertainties
In light of Euronext’s interest, Oslo Bors’ board asked other interested parties to make an offer for the company. In response to this, Nasdaq made an offer a little over a week after Euronext made theirs. Nasdaq has been widely considered a natural bidder for the last independent exchange in the Nordic region to add to its current stock of 7 exchanges in the Nordic and Baltic region. However, Euronext has secured support of shareholders with 49.6% of shares with irrevocable pre-commitments to tender their shares, which throws huge uncertainty behind this deal as the Oslo bors board has supported Nasdaq’s bid. ‘For Nasdaq to win control it would need either Norwegian regulators to back its bid over Euronext’s or for the shareholders who committed to Euronext to let their commitments lapse, which could happen from August’ as per Nasdaq Nordic CEO Lauri Rosendahl.
The acquisition of Oslo Bors is a small acquisition in a market which has undergone large consolidation and sees potential new disruptors; for example the formation of the Members Exchange (MEMX). Ultimately, the acquisition will not be the transformative deal that puts Euronext alongside industry leaders such as CME, Intercontinental Exchange or the London Stock Exchange, although it will allow them to diversify financially and geographically.
In 2017, a planned tie-up between London Stock Exchange and Deutsche Boerse was blocked by the European Competition Commission due to monopoly concerns in the processing of bond trades. Although Euronext’s CEO has said he does not expect the Norwegian government to block the bid, the Norwegian Competition Authority could block the deal if it finds the deal to be anti-competitive, such as in the derivatives market.
“This could result in even better, cheaper services for Norwegian investors via increased investment in new technology. It’ll be interesting to see what the (Oslo Bors) board says” - Svein Flaatten, Norwegian Politician
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