A glimpse at ICE Chief Jeff Sprecher’s Nasdaq playbook
By Erika S. Olson
The opinions expressed are her own.
Media coverage of the bidding war for NYSE Euronext has already played up the “Wall Street rivals” angle, and will inevitably continue to do so now that the Nasdaq bid was rejected this weekend. Observers have made much ado of the bad blood that’s existed between Nasdaq, NYSE, and their respective CEOs ever since the all-electronic market opened for business in 1971.
But anyone who is familiar with IntercontinentalExchange’s efforts to woo the Chicago Board of Trade (CBOT) in 2007 will be quick to recognize ICE chief Jeff Sprecher’s fingerprints all over the Nasdaq proposal. The joint Nasdaq-ICE bid belongs as much to Sprecher as it is does to Nasdaq’s Robert Greifeld.
Back in 2007, Sprecher waged a tumultuous 117-day bidding war against the Chicago Mercantile Exchange for the Chicago Board of Trade. And he’s already lifting a few moves from ICE’s 2007 playbook in his latest bid.
In 2007, ICE’s investment bankers warned Jeff that if his company made a surprise bid for CBOT, CME would almost certainly increase its offer within 24 hours and knock the significantly smaller exchange out of the running. But Sprecher wouldn’t relent, assuring his deal team, “I know these guys and have studied them . . . They will not get into a bidding war easily. That will be the last weapon they’ll draw.”
He was right. The Merc didn’t raise its offer high enough to turn the tide in its favor until four months later — just as Deutsche Börse hasn’t raised its bid this time round.
In 2007, Sprecher had also researched his competitors thoroughly enough to know exactly what—aside from share price—mattered to his target’s constituents: the CBOT brand and payouts relating to a long-running legal saga. Today, Sprecher’s biggest “other currency” card in his deck has already been played for him since the moment Deutsche Börse entered the scene. How can we let the icon of American capitalism be sold to foreigners?
Immediately after CME and CBOT announced their merger plans in 2007, Sprecher called an antitrust attorney to gauge how the Department of Justice might view the proposed “CME Group,” which would control approximately 85% of all exchange-traded futures in the United States, and 100% of certain product categories like Treasuries. Jeff asked specifically whether the presence of “a better way for the market to unfold” might influence the antitrust team’s investigation.
The lawyer responded, “Legally? No. Legally, they will only look at the facts of the CME/CBOT merger and not anything extraneous. But I will tell you that the decision makers are only human. And it is very hard for humans not to pay attention to extraneous materials.”
“That’s exactly what I needed to know,” Jeff replied. He hung up from the call convinced that if he could show the DOJ team there was another option for CBOT—an option that would result in a firm with a 33% share of the market rather than an 85% share—they just might be emboldened enough to stop the CME deal from progressing.
Similarly, today, Sprecher won’t let anyone argue too long against the creation of a Nasdaq/NYSE US listings monopoly without reminding them of how the alternative combination would create not only another exchange behemoth (the largest in the world), but also a derivatives monopoly in Europe.
Despite ICE’s best efforts in 2007, CME still triumphed, and Sprecher remains baffled about the final outcome. When asked why he launched his interloping bid for CBOT in the first place, he replies, “I fundamentally believed at the time, and still believe today, that the CME deal was the wrong deal for the market. I thought the market would’ve wanted an Avis and a Hertz.”
Four years later, with significantly higher stakes, we’re about to find out whether Jeff Sprecher has learned from the past to put together a real knockout bid.
Erika S. Olson, the author of “Zero-Sum Game: The Rise of the World’s Largest Derivatives Exchange“, was a managing director on CBOT’s merger team during the ICE/CME bidding war. Some material excerpted from Zero-Sum Game: The Rise of the World’s Largest Derivatives Exchange by Erika S. Olson. Published by John Wiley & Sons. Copyright © 2011. Used with permission of the publisher.
Photos, top to bottom: The Nasdaq Composite stock market index is seen inside their studios at Times Square in New York April 1, 2011. Nasdaq OMX and IntercontinentalExchange unveiled an $11.3 billion bid for the NYSE Euronext in an effort to trump Deutsche Boers’s plane to acquire NYSE. REUTERS/Shannon Stapleton; Jeffrey Sprecher, CEO of IntercontinentalExchange (ICE), speaks at the Reuters Exchanges and Trading Summit in New York March 30, 2010. REUTERS/Natalie Behring