Sandor Exits CO2 Trade, Sells Climate Exchange to ICE (Update3)

(Updates with Sandor comment in third, 14th and 15th paragraphs.)

By Mathew Carr and Simon Lomax

April 30 (Bloomberg) -- Richard Sandor agreed to sell Climate Exchange Plc to Intercontinental Exchange Inc., exiting the biggest carbon market before he could establish a global mechanism for curbing greenhouse gas.

Sandor, 68, helped invent interest-rate futures in Chicago before founding London-based Climate Exchange in 2003 and predicting last year that allowances to emit carbon dioxide “will become the largest commodity in the world.”

“I still believe that’s the case,” the Climate Exchange chairman, who will sell his 17-percent stake in a deal valuing the firm at 7.50 pounds a share, or 395 million pounds ($606 million), said today. “We are on a track to a carbon- constrained world and a trend toward renewable energy.”

With United Nations global-warming talks stalled and Barack Obama’s administration squabbling over U.S. emissions limits, the global CO2 market shrank 17 percent in the first quarter to $24 billion, Bloomberg New Energy Finance estimates. ICE’s bid follows a 24 percent gain in carbon prices this month, helped by the European Union’s clamp down on fraud and oversupply.

“ICE is taking advantage of the current poor sentiment in the carbon world,” Andrew Shepherd-Barron, an analyst in London at broker KBC Peel Hunt, said in a telephone interview today. “The offer is not generous,” he said in a note, recommending shareholders sell because a counter bid is unlikely. Climate Exchange shares reached a record 21.17 pounds in May 2008.

Premium on Shares

The bidding agent for ICE, the second-biggest U.S. futures exchange, will pay Climate Exchange shareholders a 57 percent premium over yesterday’s closing price, it said in a statement. Climate Exchange, which had net income of 670,026 pounds last year as revenue rose 48 percent, rose 55 percent to 7.43 pounds today in London, the most in the company’s history.

ICE said shareholders owning about 49 percent of Climate Exchange agreed to sell their shares. Invesco Asset Management, the largest shareholder, agreed to sell its 29 percent stake. Atlanta-based ICE, which already owns 4.8 percent of Climate Exchange, runs the London-based market where Brent crude and gasoil futures are traded.

While Sandor took his company public in 2003 and saw his European Climate Exchange grow into the world’s biggest carbon market, the U.S., Japan and other developed countries have yet to embrace the idea of capping and trading carbon rights.

Exchange’s Global Ventures

Climate Exchange owns the European Climate Exchange in London and the Chicago Climate Exchange and has ventures in nations including China, India and Korea.

The exchange’s carbon futures for 2010 delivery fell 24 percent last year as UN negotiators failed to extend the 1997 Kyoto Protocol, which set binding global emissions limits through 2012. They traded as low as 8.31 euros ($11.07) in February 2009 as the global recession reduced industrial output and demand for emission permits.

“When the carbon market crashed, the price of carbon went down to eight and people were getting very nervous about cap and trade,” Climate Exchange Chief Executive Officer Neil Eckert said today in an interview. “There was no clarity on post 2012. But now the market is growing very fast and very healthily. We’ve been disappointed in America, and Copenhagen was at best a disappointment. There’s a number of compelling reasons why the deal makes sense.”

Democrats Seek Vote

Democratic senators are seeking to vote on U.S. climate- change legislation before taking up immigration. A compromise proposal is expected to drop a House proposal for an economy- wide cap-and-trade system and focus on limits for the electric power industry, Senator Lindsey Graham, a South Carolina Republican who favors climate action, told reporters last month.

Australian Prime Minister Kevin Rudd said the country will shelve its carbon trading plan and assess actions taken by other nations at the end of 2012.

A U.S. climate-change law that includes carbon trading is still likely, Sandor said in a telephone interview today. The U.S. market for carbon dioxide pollution rights is expanding as a result of state-level cap-and-trade programs like the Northeast’s Regional Greenhouse Gas Initiative, he said.

“We will continue to see emissions trading as a policy tool,” he said. Sandor declined to comment on what his role will be after the deal is closed.

Taking Stock

In Europe, carbon prices are rising again as regulators delay a decision that would set out the timing of supplies for the period after 2012, when utilities get fewer free allowances.

Buying Climate Exchange represents an “exciting opportunity for ICE to grow and further diversify our revenues,” said Jeffrey C. Sprecher, ICE chairman and CEO, in the statement. ICE currently provides technology and clearing services for Climate Exchange’s trading operations.

“We believe that a combination with ICE makes strategic sense and look forward to addressing continued opportunities together,” Sandor said in the statement. The takeover will help the company expand into futures and over-the-counter markets in Europe, Asia and the U.S., he said.

Takeover documents will be posted no later than May 28, with the completion of the acquisition expected by the end of July, it said.

--With assistance from Kim Chipman in Washington, Marion Rae in Canberra. Editors: Charlotte Porter, Richard Stubbe.

To contact the reporters on this story: Mathew Carr in London at m.carr@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net