Diversifying its product portfolio yesterday, IntercontinentalExchange Inc. (ICE) announced its intention to acquire 12.4% stake in Cetip SA, Brazil’s leading public clearing house operator, for $512 million. The deal will be culminated today.
Accordingly, ICE’s purchase involves the procurement of a 9.9% stake from Advent International, a global private equity firm, and another 2.5% from Itau Unibanco Banco Holding SA (ITUB). This makes ICE the largest shareholder in Cetip by obtaining 31.6 million shares for R$25.50 per share.
Further, ICE plans to fund the purchase by extracting about $302 million from its cash-on-hand and the remaining $210 million from its existing credit facility. Although the deal is not expected to have any material affect on the earnings of ICE in 2011, it opens up a new avenue of growth generation as the company aims to tap the over-the-counter (OTC) market for custody and settlement of government and fixed income derivatives, where Cetip primarily operates.
Meanwhile, the deal is expected to boost the growth prospects of both Cetip and ICE. Despite the global market downturn over the last couple of years, Cetip's net revenue surged 3.4 times from R$165 million in 2008 to R$557 million in 2010, while EBITDA has grown 3.5 times from R$106 million to R$376 million. Additionally, with more than R$3.0 trillion (~US$1.9 trillion) in assets under custody, Cetip is a leading OTC market in Brazil.
Hence, association with Cetip will not only enhance ICE’s competitive and operating efficiencies but will also help it to penetrate deeper into the rapidly emerging Brazilian markets where its national exchange’s only approved depository clearinghouse–BM&FBovespa has been dominating its capital market. For this reason, Brazil has attracted many exchange operators lately, creating more scope for both pricing and product competition.
Recent business alliances from foreign exchange operators have also indicated the attempts to break the dominance of BM&FBovespa. While Latin America’s largest capital market–Bovespa has already reined in the pricing competition, BATS Global Markets of the US recently partnered with a Brazilian asset management firm, Claritas, and is looking forward to launch a low-cost exchange in Brazil.
With almost similar intentions, Cetip and ICE have joined hands together to provide high quality counterparty risk management and clearing services and to eliminate BM&FBovespa’s control. Hence, the deal appears to be a strategic fit and complements both the parties involved.
Later this month, ICE is also expected to launch electricity futures contracts through BRIX, which was announced earlier this year. BRIX is another partnership in Brazil with it richest man, Eike Batista. ICE also plans to launch Brazilian coffee futures, Brazil Arabica, by 2013. This again indicates the company’s huge plans to grow its scale of operations in rapidly developing Brazil.
INTERCONTINENTL (ICE): Free Stock Analysis Report
Be the first to comment