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ICE Buys Creditex

NEW YORK (Reuters) – IntercontinentalExchange (ICE.N: Quote, Profile, Research) said on Tuesday that it would acquire Creditex Group Inc, a credit derivatives broker, for $625 million in cash and stock, giving the exchange a foothold in over-the-counter credit derivatives trading.

ICE, an electronic energy marketplace and soft commodity exchange, said it expects the deal to generate $9 million to $14 million in new revenue and savings in 2009.

“It's a move into financial products and quite a move into the over-the-counter space, rather than the exchange-trading,” said Edward Ditmire, an analyst with Fox-Pitt Kelton who found the move surprising.

The fact that Creditex is an electronic interdealer will make the fit easier, he said. Interdealers are brokerage firms that act as intermediaries to facilitate trades between major dealers.

ICE will pay $565 million in stock and $60 million in cash. The deal is expected to close in the third quarter.

Creditex will become a wholly-owned subsidiary of ICE and will continue to operate under its own name.

ICE has substantial transatlantic operations and lists the primary global benchmarks for crude oil. Like other exchanges, it is eager to diversify into new product categories.

Both NYSE Euronext (NYX.N: Quote, Profile, Research) and Nasdaq OMX (NDAQ.O: Quote, Profile, Research) have expressed an interest in entering the credit derivatives market, one of the fastest growing segments of the OTC derivatives market. According to the International Swaps and Derivatives Association, the notional amount outstanding of credit derivatives had reached $62.2 trillion by the end of 2007, up 81 percent from a year earlier.

Rival exchange CME Group Inc (CME.N: Quote, Profile, Research) in March bought credit derivatives data provider, Credit Market Analysis Ltd, to position itself to get a piece of this segment. 

Atlanta-based ICE, formed in 2000, has pursued acquisitions as a way to grow, buying the New York Board of Trade in January 2007 and the Winnipeg Commodities Exchange in August 2007. It also bought Chatham Energy, a brokerage focusing on OTC energy options.

Morgan Stanley (MS.N: Quote, Profile, Research) advised ICE on the Creditex transaction.

(Reporting by Phil Wahba; editing by John Wallace)

peHUB Note: TA Associates invested around $57 million in Creditex in 2005, and will receive ICE shares via the transaction.