Intercontinental Exchange: Soon To Be A Bargain? – Seeking Alpha

Intercontinental Exchange (ICE is a company I have liked for some time.

I pounded the table for ICE in early 2014 and called it one of the market’s best values as recently as January. Like me, they’re based in Atlanta. They’re the home team, a solidly-built financial transaction processor born in 1999 that made its bones operating futures markets in commodities like oil.

The stock has been on a generally-upward trajectory, but has lately been falling, in line with the general market, but is up about 15% from the time I first suggested it, despite a hard fall from late January that has it currently below $ 240/share.

The company is in the news today over its effort to scuttle the merger between the two major European exchanges, the London Stock Exchange Group (OTCPK:LNSTY) and Deutsche Boerse (OTCPK:DBOEY), saying it might make a bid for the former by the end of this month.

ICE is in position to acquire one, but not both of its rivals. It has very little debt, and a Price/Earnings multiple of about 21. The weakness of the British Pound has dropped the value of LSE to about $ 14 billion (it’s at 10.03 billion UK Pounds), and ICE has a market cap of $ 27.7 billion, making it quite affordable while maintaining control. The German exchange would be a tougher get – it’s worth 14.7 billion Euros, about $ 16 billion.

Either deal could well be scuttled by politics. Long before ICE bought the New York Stock Exchange, the German exchange had launched a bid for what was then NYSE Euronext, in 2007, but that deal was stopped by European regulators.

The refusal eventually allowed Intercontinental to come in with a bid for the New York exchange that was well below the German offer (the financial crisis had intervened), which was accepted after it broke out the Euronext cash market in a $ 1.2 billion IPO.

So it’s a bitter irony in Europe that ICE might be in a position to now pick off its major exchanges in detail, and prevent them from combining in a deal whose value would actually exceed that of ICE itself. And this is the main reason ICE is making the bid. There just are not that many plays on the board, and allowing the London-German deal to go forward would create a powerful rival.

This is precisely why I don’t think ICE’s bid will be successful. It is far more likely that the bid will be rejected, and that the European deal will go through as a result. But the distraction, and the cost of playing the game, should have a negative impact on the value of ICE this year, which means you may be able to get a good operator at a fair price.

Watch this space.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.