European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

Bolsas y Mercados Espanoles / Event-Driven

On November 6th, Bloomberg reported that <a href="https://www.smartkarma.com/entities/euronext-nv" target="_blank" data-smartkarma-citation="entities:21450:1" rel="noopener">Euronext NV (ENX FP)</a> was interested in acquiring <a href="https://www.smartkarma.com/entities/bolsas-y-mercados-espanoles-sh" target="_blank" data-smartkarma-citation="entities:21254:1" rel="noopener">Bolsas Y Mercados Espanoles Sh (BME SM)</a>, the operator of the Mercado Continuo, the main Spanish stock market. At the next day open, BME gained over 5% vs the prior close.
BME has just received an A- rating (stable outlook) by Standard &amp; Poor’s, due to the “low level of debt, the strong operational efficiency, the vertical integration of the business value chain and the solid liquidity position”. S&amp;P considers that BME will maintain its dominant position (in Spain). The share price of BME is supported by a 6% dividend yield.
BME would become the second largest revenue contributor to an enlarged Euronext-Oslo Børs-BME, further diversifying Euronext's revenue mix and increasing the weight of post-trade. It would be a defensive move for BME (see the chart further in the note) that has underperformed the main European exchanges, which have gained scale and entered higher margin businesses. Given the ongoing acquisition rumors on BME, a short position seems dangereous.
Euronext could justify launching a bid at a 15% premium to the last undisturbed price, that would be EUR 28.63, considerably above where BME has traded over the last three months.
Euronext aims to retain a strong investment credit rating. An all-cash bid financed entirely with debt would take the leverage of Euronext-BME to 3.6x proforma net debt/2020e EBITDA, before any synergies, thus surely slightly downgrading Euronext's credit rating. A ratio in the region of 3.0-3.5x would be more palatable.
Euronext could borrow EUR 834 million to be within the EUR 2 billion comfort zone stated by management, and either launch a rights issue for EUR 1,539 million or throw some own shares in the mix.
On this basis, the recommendation is long BME with a EUR 28.63 price target. 
It seems that going hostile is not the best course of action within the exchanges sector. HKX withdr3w its offer for LSE after encountering resistance from LSE management. Euronext will want a rock-solid recommendation from BME before pushing the button, probably also bolstered by a break fee.

On November 6th, Bloomberg reported that Euronext NV (ENX FP) was interested in acquiring Bolsas Y Mercados Espanoles Sh (BME SM), the operator of the Mercado Continuo, the main Spanish stock market. At the next day open, BME gained over 5% vs the prior close.
BME has just received an A- rating (stable outlook) by Standard &amp; Poor’s, due to the “low level of debt, the strong operational efficiency, the vertical integration of the business value chain and the solid liquidity position”. S&amp;P considers that BME will maintain its dominant position (in Spain). The share price of BME is supported by a 6% dividend yield.
BME would become the second largest revenue contributor to an enlarged Euronext-Oslo Børs-BME, further diversifying Euronext's revenue mix and increasing the weight of post-trade. It would be a defensive move for BME (see the chart further in the note) that has underperformed the main European exchanges, which have gained scale and entered higher margin businesses. Given the ongoing acquisition rumors on BME, a short position seems dangereous.
Euronext could justify launching a bid at a 15% premium to the last undisturbed price, that would be EUR 28.63, considerably above where BME has traded over the last three months.
Euronext aims to retain a strong investment credit rating. An all-cash bid financed entirely with debt would take the leverage of Euronext-BME to 3.6x proforma net debt/2020e EBITDA, before any synergies, thus surely slightly downgrading Euronext's credit rating. A ratio in the region of 3.0-3.5x would be more palatable.
Euronext could borrow EUR 834 million to be within the EUR 2 billion comfort zone stated by management, and either launch a rights issue for EUR 1,539 million or throw some own shares in the mix.
On this basis, the recommendation is long BME with a EUR 28.63 price target. 
It seems that going hostile is not the best course of action within the exchanges sector. HKX withdr3w its offer for LSE after encountering resistance from LSE management. Euronext will want a rock-solid recommendation from BME before pushing the button, probably also bolstered by a break fee.

Bolsas Y Mercados Españoles (BME SM) - Euronext: Shotgun Marriage?

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Thematic (Sector/Industry)

High debt burdens are not just a developing world phenomenon. The growth of Quantitative Easing programs has resulted in significantly increased debt in many countries, including a good number in the European Union, whose debt levels are masked by accounting procedures.

High debt burdens are not just a developing world phenomenon. The growth of Quantitative Easing programs has resulted in significantly increased debt in many countries, including a good number in the European Union, whose debt levels are masked by accounting procedures.

The Potential for National Financial Default

Spain

Bolsas y Mercados Espanoles, SHMSF, S.A. is made up of the Barcelona, Bilbao, Madrid, and Valencia Stock Exchanges, MF Mercados Financeiros, and Iberclear. The Group encompasses the equity, fixed-income and derivatives markets, and their clearing and settlement systems.

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Bolsas y Mercados Espanoles (BME SM)

Bolsas Y Mercados Españoles (BME SM) - Euronext: Shotgun Marriage?

On November 6th, Bloomberg reported that Euronext NV (ENX FP) was interested in acquiring Bolsas Y Mercados Espanoles Sh (BME SM), the operator of...

Jesus Rodriguez Aguilar

The Potential for National Financial Default

High debt burdens are not just a developing world phenomenon. The growth of Quantitative Easing programs has resulted in significantly increased...

Bixmoor

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52-week Range

Market Cap (USDm)

P/E

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