Euronext/BME/Borsa Italiana: Is this really happening?

According to the media, Euronext is exploring a bid on European stock exchanges, among which BME and Borsa Italiana. This has been in the air for a long time but Euronext’s recent CMD (where management dropped the idea it could raise about €2bn equity) might have accelerated any potential deals.

While we have been positive on the French trading venue for a long time, we have also been wary of BME for a long time (cf our last teaser “_BME in a corner_”). We have not had a Sell recommendation yet as it has always been a potential target for Euronext.

Euronext is also said to be interested in Borsa Italiana, which is currently owned by LSEG. LSEG might need to divest this asset in the frame of the acquisition of Refinitiv (deleveraging). Euronext will publish its Q3 19 results after the market close today.

BME is up about 4.3% this morning following rumours that Euronext might bid on the company. It has been up 16% since Euronext’s announcement (during its CMD) that it can raise up to €2bn for transformational acquisitions.A deal with BME would make sense, as it would create important synergies in the trading area especially.

Euronext would also be able to leverage the company’s expertise in post-trading (even if this would require important investments to develop BME’s clearing and settlement infrastructures).

We consider 40% synergies (on BME’s cost base) as a reasonable number, equivalent to about €45m pre-tax.Based on this number, BME’s price and considering a 100% cash deal, we consider €28/share to be a fair price (+12% vs yesterday’s closing and +25% since Euronext’s capital markets day).

Considering Euronext would use €805m debt (3.5x net debt/EBITDA ratio) and would raise €1.54bn equity, the deal would be 10% earnings accretive before synergies and 19% post synergies.

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