London's International Petroleum Exchange (IPE) and the Internet-based Intercontinental Exchange (ICE) yesterday announced an agreed ICE takeover which values the IPE at $67.5 million plus shares in ICE equity.

The takeover combines the IPE's energy futures contracts, including benchmark Brent crude, with Atlanta-based ICE's slate of over-the-counter energy derivatives. "ICE and the IPE intend to transition IPE's existing business to the ICE's platform. The Internet will allow 24 hour global access to the ICE platform for trading," the exchanges said.

ICE will pay shareholders "B" class shares worth $5.895 redeemable one year after IPE contracts trade exclusively electronically for 10 days, valuing the IPE at $67.5 million. Shareholders will also receive an equal number of "A" class shares in ICE equity, putting the value of the year-old Internet venture at a notional $1.35 billion.

IPE chairman Bob Reid, who will join the ICE board along with IPE chief executive Richard Ward said the ICE proposal was "substantial and attractive." The offer requires 50 per cent approval from shareholders, who are concentrated largely among IPE users. The IPE board prior to yesterday's announcement had secured a large majority of initial support, insiders said. Reid said he anticipated no regulatory obstacles.

"There are no difficulties with regulators. There is no issue," he said. ICE chief executive Jeffrey Sprecher said he expected IPE contracts, which also include gas oil and natural gas, to be available over ICE technology in a year's time. Daily trade over the newly-enlarged ICE would run to $3.5 billion, he said.

Sprecher said the newly enlarged ICE, in which IPE shareholders will take up to 10 per cent, would consider the possibility of an initial public offering. The deal starts the clock ticking on the end of open-outcry for the IPE, one of the last bastions of pit trading. Electronic trade on the IPE now is limited to early morning hours.

ICE was founded last year by seven banks and energy groups - BP, Deutsche Bank, Goldman Sachs, Morgan Stanley Dean Witter , Royal Dutch/Shell, Societe Generale and TotalFinaElf. BP, Total, Goldman Sachs and Morgan Stanley all have representatives on the 14-strong IPE board of directors.

Europe's largest energy exchange, the IPE has been looking to bolster its position against U.S. rival the New York Mercantile Exchange. "The existing ICE platform which is designed to handle OTC business will be adapted to provide the levels of functionality and performance required for sophisticated exchange based futures trading," ICE and the IPE said.

"The trading of IPE contracts utilising this technology on the ICE platform should allow the IPE to thrive and grow in the electronic era." The exchanges said they were preparing to mitigate the risk of any loss of liquidity during the transition.

NYMEX, soon to start its own electronic trading site, eNYMEX, had anticipated the ICE-IPE move by announcing the launch of its own version of the IPE's flagship Brent crude contract. "It will take them time to make headway, there will not be an immediate impact," the IPE's Reid said.

The London exchange has lagged behind NYMEX in electronic trading, concentrating business in 10 hours of open outcry. NYMEX contracts already are available around the clock. Sprecher played down speculation yesterday that ICE could threaten to topple the New York Mercantile Exchange (NYMEX) from its position as the world's leading energy trading outfit.

"At this point we have our plates full," Sprecher told Reuters. "We have to digest this and work with the IPE to get the infrastructure in place to take its business electronic and that's really my focus." Europe's largest energy exchange, the IPE has been looking to bolster its position against its U.S. rival just as NYMEX - the world's biggest commodity exchange - prepares to start its own electronic trading site, enymex.

Just ahead of the ICE-IPE merger, NYMEX announced it would launch its own version of the IPE's flagship North Sea Brent crude contract - price marker for millions of barrels of Middle Eastern, African and European crude.

Sources say NYMEX is also mulling a gas oil futures contract, in another attempt to take business away from IPE. The London exchange has lagged NYMEX in electronic trading, concentrating business in 10 hours of open outcry. NYMEX contracts, including its benchmark U.S light, sweet crude, already are available around the clock.

"Our greatest vulnerability was the failure to put in place an electronic platform," said Reid. "We've seen how in other sectors of the financial markets major players have lost their market virtually overnight by not having such a platform and we were determined that this wouldn't happen to us," he added.

Daily trade over the newly enlarged ICE would run to $3.5 billion, Sprecher said. That compares to about $14 billion a day on energy and commodities trade on NYMEX. ICE's existing platform will be adapted for futures trade, sounding the death knell for the IPE's traditional open-outcry - floor trading through a flurry of shouts and hand signals - in about one year, Sprecher said.

"We want to make this an evolutionary process, not a revolutionary one," he said. "We want to make sure the liquidity IPE currently enjoys is successfully transferred to the new platform." ICE was founded last year by BP Amoco Plc, Deutsche Bank, Goldman Sachs, Morgan Stanley Dean Witter & Co, Royal Dutch/Shell, Societe Generale and TotalFinaElf.

BP, Total, Goldman Sachs and Morgan Stanley all have representatives on the 14-strong IPE board of directors. Sprecher dismissed concerns that Big Oil dominates ICE and could wield too much influence in the merged exchange.

"It's a fallacy, there's nobody dominant in ICE," he said. "Exchanges are run by the trade and that's how I formed ICE and brought those guys in."