Mixed motives as ICE buys Canadian exchange

IntercontinentalExchange (ICE), the electronic energy and soft commodity bourse, has entered into an agreement to purchase Winnipeg Commodity Exchange (WCE), Canada’s main agricultural commodity futures and options exchange and home to the world’s leading canola futures contract.

The purchase price for the transaction is C$62.08 (US$58) per common share or C$40 million, subject to the approval of WCE shareholders.

The move strengthens ICE’s presence in Canada following a clearing and technology sharing partnership forged earlier this year with the Calgary based Natural Gas Exchange (NGX) which lists natural gas swaps and physical contracts. In 2009, a 10-year old non-compete agreement between Canadian exchanges will cease, meaning that the exchanges will no longer be bound by rules determining what they trade. Competition in the derivatives space is set to increase as a result.

"The addition of Winnipeg's markets further enhances our agricultural product offering,” said Jeffrey Sprecher, ICE chairman and CEO. “This franchise brings to ICE a Canadian-based regulated futures exchange and clearing house from which we can develop additional derivative trading and clearing opportunities based on the Canadian markets which are rich in natural resources."

While the acquisition of 120 year old Canadian exchange complements ICE’s January purchase of the New York Board of Trade, the move also serves as a nudge to the Chicago Board of Trade (Cbot) as ICE tries to convince the Chicago board to accept its unsolicited bid in the face of a recently improved offer from its cross town rival, the Chicago Mercantile Exchange.

The WCE currently has an electronic trading services agreement with Cbot, but ICE says that it expects to transition trading in WCE’s markets to the ICE electronic platform and WCE’s clearing platform to ICE Clear.

Earlier this week ICE sent a letter to Cbot shareholders urging them not to accept the CME’s revised bid ahead of the crucial July 9 shareholders meeting to vote on the issue. “Your Board of Directors has agreed to a bargain basement sale of your company to the Chicago Mercantile Exchange in a transaction that would leave over $1 billion of your money on the table,” the letter said. “ICE's merger proposal is clearly superior, both financially and strategically, yet your Board has failed to act in your best interests and continues to recommend the inferior CME transaction.”