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Further to the announcement made by IPE Holdings on 9 April 2001, and a subsequent consultation period with IPE Holdings shareholders, the boards of ICE and IPE Holdings announce the terms of a recommended all-share offer for the entire issued and to be issued share capital of IPE Holdings, to be made by Goldman Sachs International on behalf of ICE.
Background
The complementary nature of the ICE and the IPE businesses is expected to produce significant benefits for market participants and shareholders. A broad range of risk management products covering over-the-counter (OTC) and futures markets in commodities will be offered with the potential to expand into new products and to develop cleared OTC products. Offset margining across those products could offer the potential for significant cost savings to market participants. In addition, the combined business will have access to a valuable range of market information and data which will be further developed as a service to customers and source of revenue generation. Through the combination of ICE and IPE Holdings, IPE Holdings shareholders will have the opportunity to gain access to, and have a stake in, an organisation that is well positioned to become one of the world's leading platforms for commodities trading.
ICE owns and operates an electronic commodities trading platform and is headquartered in Atlanta, Georgia in the United States. ICE was formed in May 2000 by Continental Power Exchange, Inc., The Goldman Sachs Group, Inc., Morgan Stanley Capital Group, Inc., BP Exploration and Oil, Inc., Elf Trading Inc., ST Exchange, Inc. (an affiliate of the Royal Dutch/Shell Group), Société Générale Financial Corporation, MHC Investment Company (an affiliate of Berkshire Hathaway) and Deutsche Bank Sharps Pixley Inc. These founders were joined by six power and natural gas companies in November 2000. The ICE Platform offers OTC trading in 110 products in physical as well as cash settled derivatives based on oil, natural gas, power and metals. In advance of combining ICE and IPE Holdings, ICE Inc. will succeed IntercontinentalExchange LLC (ICE LLC) as the parent entity of the ICE group. References to ICE in this announcement are to ICE Inc. or ICE LLC as appropriate.
IPE Holdings is the holding company of the IPE, which is a leading energy futures and options exchange. The IPE, a Recognised Investment Exchange in the United Kingdom, operates in a highly regulated marketplace where industry participants use futures and options to manage their price exposure in the physical energy markets.
The Offer
The Offer will be a share-for-share exchange of one share of ICE Inc. Class A Series 1 Common Stock (Class A1 Shares) and one share of ICE Inc. Class B Redeemable Common Stock (Class B Shares and, together with the Class A1 Shares, the New ICE Shares) for each IPE Holdings share.
Pursuant to the City Code, an estimate of the value of the Class A1 Shares and Class B Shares (the Estimate of Value) will be provided by Goldman Sachs International and KPMG Corporate Finance. The Estimate of Value will be included in the Offer Document.
The Estimate of Value will estimate that each Class A1 Share has a value in the range of $1.75 to $6.11. It will also estimate that, assuming redemption, each Class B Share has a value in the range of $4.80 to $5.33, reflecting a total value for each IPE Holdings share in the range of $6.55 to $11.44 and a total value of all IPE Holdings shares in a range of $75 million to $131 million (equivalent to a range of £52 million to £92 million based on a conversion rate of $1.00 = £0.699) (the Value Range Assuming Redemption).
The Estimate of Value, assuming no redemption, will estimate that each Class B Share has a value in the same range as each Class A1 Share, reflecting a total value for each IPE Holdings share in a range of $3.50 to $12.22 and a total value of all IPE Holdings shares in a range of $40 million to $140 million (the Value Range Assuming No Redemption).
For the purposes of the IPE's demutualisation, the IPE Holdings shares were independently valued in January 2000 at £2.62 each (equivalent to $3.75 based on a conversion rate of $1.00 = £0.699) (the demutualisation value). The bottom end of the Value Range Assuming Redemption represents a premium of 75 per cent. to the demutualisation value. The top end of the Value Range Assuming Redemption represents a premium of 205 per cent. to the demutualisation value.
In July 1999, the IPE received a proposal which contemplated a number of new investors subscribing for 70 per cent. of its share capital (the Plan B Proposal), valuing the IPE at £35.7 million or £3.12 per IPE Holdings share (equivalent to $51 million or $4.46 per share based on a conversion rate of $1.00 = £0.699). The bottom end of the Value Range Assuming Redemption represents a premium of 47 per cent. to the Plan B Proposal value. The top end of the Value Range Assuming Redemption represents a premium of 157 per cent. to the Plan B Proposal value.
If all IPE Holdings shares are acquired by ICE pursuant to the Offer, IPE Holdings shareholders will hold, in aggregate, 10 per cent. of the enlarged issued share capital of ICE Inc.
The Class B Shares will give each IPE Holdings shareholder certain rights to have its Class B Shares redeemed, in whole or in part, by ICE for cash. The Class B Shares will be capable of redemption for a period of one month from the first anniversary of the date on which the IPE Brent Futures Contract and the IPE Gas Oil Futures Contract have traded exclusively for ten consecutive trading days through an electronic trading platform. Following this redemption period, any Class B Shares which have not been redeemed will automatically convert into Class A1 Shares. The Class B Shares are also redeemable in certain other circumstances described in Appendix IV of this announcement. The redemption price for the Class B Shares will be $5.895 per share, payable in US dollars, (which, based on a conversion rate of $1.00 = £0.699, represents a redemption price of £4.12 per share).
Various risk factors relevant to the business of the Enlarged Group, the New ICE Shares and the Estimate of Value are set out in Appendix II of this announcement.
The boards of ICE and IPE Holdings have agreed to maintain the current structure and management of the IPE to ensure an orderly transition to electronic trading and co-ordination of the transition with its regulator, the Financial Services Authority. The Chairman of the IPE (Sir Bob Reid) and the Chief Executive Officer of the IPE (Dr. Richard Ward) will join the board of ICE following the acquisition.
The ICE Shares currently in issue are not, and the New ICE Shares to be issued pursuant to the Offer will not be, listed or traded on any recognised stock exchange. It is anticipated that there will be a limited dealing facility in London, similar to the Charterhouse dealing facility that currently exists with respect to IPE Holdings shares, through which holders of Class B Shares will be able to trade such shares. Although there will be no dealing facility for the Class A1 Shares, it will be possible to transfer Class A1 Shares with the consent of the board of ICE, such consent not to be unreasonably withheld.
Commenting on the Offer, Jeffrey Sprecher, Chief Executive Officer of ICE, said: "The merger of ICE and IPE Holdings will establish one of the world's primary centres of liquidity for commodities trading, both in futures and over-the-counter products. The combination of ICE's state-of-the-art technology platform, growing volumes and committed shareholder base, with the IPE's established liquidity and brand name, management expertise and status as an exchange makes this an extremely attractive transaction."
Commenting on the Offer, Sir Bob Reid, Chairman of IPE Holdings, said: "The financial benefits of this proposition are substantial for our shareholders. However, the primary advantage arises from the creation of a global network which brings strength and opportunity. To be absent from such a development would mean failing to secure the exchange's long-term future."
