Euronext And Borsa Italiana Buy MTS

Euronext and Borsa Italiana - the Italian securities and derivatives exchanges group - are buying a 51% stake in MTS
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Euronext and Borsa Italiana – the Italian securities and derivatives exchanges group – are buying a 51% stake in MTS.MTS (Societ per il Mercato dei Titoli di Stato S.p.A.) shareholders have accepted their joint offer to acquire “at least” 51% of the company, and the two bidders expect to acquire the whole of the bond trading platform. Euronext has an option to buy the Borsa Italiana stake.

“We welcome the decision taken by MTS shareholders, and in particular their support for our joint venture with Borsa Italiana,” says Jean-Franois Thodore, Chairman of the Managing Board and CEO of Euronext. “The move will lend fresh impetus to the already impressive development of MTS by offering a range of innovative products on trading platforms open to international investors. This new initiative alsorepresents an additional source of diversification of the business and revenue of Euronext, and as such should benefit both our clients and our shareholders.”

The two buyers say the purchase is in line with their strategy of enlarging their geographical footprint and asset classes, by allowing them to participate in the electronic trading revolution in the bond markets.

“We are very pleased by the outcome of this transaction which has been strongly supported by both international and domestic stakeholders,” says Massimo Capuano, President and CEO of Borsa Italiana. “Borsa Italiana’s effort to create value for both shareholders and users will be enhanced by this exceptional opportunity to expand growth in a complementary asset class with a truly international reach. I am confident that the partnership between Borsa Italiana and Euronext in this venture will be successful in creating the European hub for fixed income products at the benefit of issuers and market users.”

MTS is an electronic trading platform for European wholesale fixed-income securities, especially government and sovereign bonds. MTS has built a cross-border, pan-European business. In 2004, it generated revenues of Euros 60.7 million and an EBITDA of Euros 8.5 million. Following a recent renegotiation by MTS of its IT contract with its supplier, EBITDA is expected to grow to around Euros 20 million by 2006.

Euronext and Borsa Italiana are committed to subscribe to at least 51% of the share capital of MTS, and then up to 100% through the purchase of existing shares through a 51:49 joint venture, majority owned by Euronext. The offer values 100% of MTS at Euros 245 million, or approximately EUR 322 per share. The joint venture will be debt free and Borsa Italiana and Euronext will respectively pay Euros 56 million and Euros 69 million for the minimum 51% stake in MTS. The acquisition will be realized via a capital increase of MTS subscribed by the joint venture and the proceeds will be distributed to the historical shareholders. The remaining 49% of MTS shares will be subject to a preemptive rights subscription and sale mechanism, first between the historical shareholders and MTS dealers, and then to the joint venture. As a result of the above mechanism, the joint venture will own at least 51% and up to 100% of MTS shares. Any additional participation of the joint venture in MTS above the 51% threshold will be financed by Borsa Italiana and Euronext according to the same funding ratio in the acquisition of the first 51% stake. The closing of the acquisition is expected by the end of November 2005. It remains subject to the right of users to retain or add to existing interests, or to acquire an interest if they do not already have one, as well as to the usual regulatory and antitrust approvals. It has been agreed between Borsa Italiana and Euronext that, for a period of five years after the closing, Borsa Italiana will have the right to sell its interest in the joint venture to Euronext, for the first 3 years at a price linked to the price paid by Borsa Italiana pursuant to its initial transaction and to MTS’ performance, and then for the two following years at a price only correlated to MTS’ financial performance.

Both Borsa Italiana and Euronext reiterate that users will be strongly represented at each level of the MTS corporate governance structure. The offer guaranties that MTS’s current regulatory structure will remain unchanged. MTS’s operations will be regulated by its existing applicable regulatory regimes, with the holding MTS SpA under Italian law, its headquarters in Rome and Milan and the local MTS’ markets in Europe under their respective current domestic regulatory regimes.

Borsa Italiana and Euronext say they are committed to building a major European network with global reach. Borsa Italiana and Euronext have undertaken to develop MTS’ role as the European hub for all government bonds as well as for other fixed-income products.

The combination of MTS, Euronext and Borsa Italiana is expected to lead to the consolidation of MTS’s existing business, especially among end-investors – by, for example, by boosting the development of BondVision by leveraging Borsa Italiana and Euronext contacts with investors.

An electronic distribution network to develop MTS as a one-stop shop for fixed-income cash and derivatives will be developed. The development of correlated derivatives and underlying product pairs traded on LIFFE.CONNECT and IDEM, plus the launch of new assets such as corporate bonds and structured products, will also be pursued.

Other new products – such as new indices based on bonds traded on MTS – will be developed in consultation with users.

Euronext was advised by ABN AMRO, and Borsa Italiana by Credit Suisse First Boston and Mediobanca.

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