Climate Exchange shares rally following ICE investment

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Shares in leading carbon exchange operator Climate Exchange jumped more than 16% yesterday following news that IntercontinentalExchange (ICE) had bought a 4.8% stake in the company – sparking speculation of a takeover attempt.

Climate Exchange owns the leading carbon exchanges in the US – the Chicago Climate Exchange and Chicago Climate Futures Exchange – and the London-based European Climate Exchange. The company’s contracts are traded via the ICE platform.

ICE was previously not a shareholder in Climate Exchange, and the sudden investment boosted the latter’s shares, listed on the London Stock Exchange’s Alternative Investment Market. The shares closed up 16.4%, at £7.51 ($12.44) from £6.45, and continued to rally today, closing at £8.25.

“As yet, neither company has given any comment on the nature of the investment, but the 17% rise in Climate Exchange’s share price reflects the possibility that this may lead to a bid,” said Ken Rumph, an analyst at Noble Group. He also noted that ICE, with a market capitalisation of $8.4 billion and net debt of $140 million, “appears to have the financial resources to acquire Climate Exchange if it wished to”.

But Rumph also noted that ICE could pay “a lot of money” for the company, which had a market capitalisation of £356 million at the close last night, as the 47 million shares in issue would rise by 18% to over 56 million if all the in-the-money share options were granted. This would push the market cap to £422 million, based on last night’s share price, he said.

ICE’s move could spark interest from other exchange operators, Rumph said. “[Climate Exchange] is unique … it runs the leading emissions derivatives exchanges on either side of the Atlantic”, and rivals such as the Chicago Mercantile Exchange and Deutsche Börse may be tempted, Rumph said. “It could be their one chance to buy the [carbon] market leader,” he added.

Climate Exchange also has strategic partnerships in China, Canada and Australia and also owns the Insurance Futures Exchange, which lists contracts linked to catastrophe risks faced by the insurance sector.

Neil Eckert, CEO of Climate Exchange, told Carbon Finance that the company is “delighted” with the move by ICE as “it aligns our economic interests … As far as we’re concerned, it’s a strategic investment [for ICE].”

ICE declined to comment.