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Capital Markets

Equity exchanges move into fixed income

Euronext and Borsa Italiana take majority stake in MTS platform

Euronext and Borsa Italiana teamed up together in July to beat eSpeed, Icap and several other bidders to a majority stake in European government bond trading platform MTS.

The deal, which values MTS at €245 million, gives the two exchange groups control over the market leader in electronic fixed-income trading in Europe.

Euronext and Borsa Italian will own at least 51% of MTS through a joint venture. The acquisition will be realized through a capital increase of MTS subscribed by the joint venture and the proceeds will be distributed to existing shareholders. The remaining 49% of MTS shares will be subject to a pre-emptive rights subscription, so the joint venture could end up owning a lot more.

Euronext is paying €69 million for 51% of the joint venture and Borsa Italiana is paying €56 million for 49%. MTS had revenues in 2004 of €60.7 million and ebitda of €8.5 million, although this is expected to rise to €20 million in 2006.

MTS fits nicely with Euronext's Liffe.Connect derivatives exchange and Borsa Italiana's IDEM and the deal provides both with some diversification. There are also ambitious plans to turn MTS into a one-stop shop for fixed-income cash and derivatives, possibly making use of Euronext's and Liffe.Connects

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