Deutsche Boerse AG’s Eurex subsidiary is offering US$67.50 a share for the International Securities Exchange in a bid to create the biggest transatlantic derivatives exchange.

The firms announced that they have signed a definitive agreement under which Eurex will acquire ISE for approximately US$2.8 billion in cash. The combination will be implemented by way of a merger and is subject to approval by the holders of a simple majority (50% plus one share) of ISE outstanding common stock at a special shareholder meeting, regulatory approval by the U.S. Securities and Exchange Commission and other customary closing conditions. ISE’s board of directors recommends to shareholders to vote in favour of the transaction.

ISE is the world’s largest equity options exchange, providing electronic trading in USD denominated equity options, index options and FX options. Eurex, jointly owned by Deutsche Boerse and SWX Swiss Exchange, has a diversified portfolio of Euro denominated fixed income, index and equity derivatives.

The transaction will create the largest transatlantic derivatives marketplace with significant U.S. dollar and Euro product coverage and with significant operations and revenues in both the U.S. and Europe, the two largest markets based on market capitalization. It will further strengthen Eurex’s position as a global derivatives marketplace and will create a market leader in individual equity, equity index and interest rate derivatives worldwide with a combined overall trading volume of 2.1 billion contracts in 2006.

The firms say that the Eurex’s and ISE’s complementary member bases and product portfolios provide significant growth opportunities across asset classes and national boundaries. Further upside potential stems from joint product and business development opportunities. ISE will continue to operate as a separate entity under SEC regulation in its current governance structure and under the ISE brand. ISE’s full management intend to remain in their positions.

Their combination is expected to create estimated pre-tax synergies of US$50 million per year; 50% of the total synergies will be achieved in 2010 and full run rate synergies in 2012. Of the total some US$15 million are attributable to efficiency gains. An additional approximately US$35 million would come from revenue synergies mainly through the cross selling of existing products.

Eurex will be the acquiring entity with its two parent companies Deutsche Boerse AG and SWX Swiss Exchange providing the necessary financing. Deutsche Boerse will contribute 85% of the total purchase price and SWX 15% thereby remaining in line with the economic interests that both companies have in Eurex.

Deutsche Boerse is planning to finance its share of the purchase price initially through a bridge loan facility of approximately 1.5 billion euros (about US$2 billion) and cash on hand at the time of closing.

“This transaction further expands Deutsche Boerse’s leading position in the fast growing global derivatives markets,” said Deutsche Boerse CEO Reto Francioni. “The agreement is a strategic milestone for us that will further fuel our strong growth prospects and create significant value for shareholders. This transaction underscores our approach to combine strong organic growth with value creating acquisitions.

“ISE and Eurex are partners with an excellent strategic fit. Both are innovators of electronic trading in their time zone, sharing the same management culture. We look forward to combining our strengths to create a global marketplace,” said Andreas Preuss, CEO of Eurex and a member of the executive board of Deutsche Boerse. “The combination of ISE’s leadership position in the U.S. equity options market with Eurex’s global position in Euro denominated fixed income, index and equity derivatives will provide significant benefits to our customers.”

“In founding ISE almost 10 years ago, we transformed the U.S. options market,” said David Krell, president and CEO of ISE. “Our innovative products, electronic trading model, technology, market structure and entrepreneurial organization have enabled us to remain at the forefront of the options industry. Our principle strategic objective is to further grow our business both in terms of new products and new markets and in partnering with Eurex, we will be able to achieve our goal. By completing this transaction, we will be positioned to build upon ISE’s successful business model and to solidify our future as an integral component of the largest transatlantic derivatives marketplace.”