For more than two years, a recurring question has gnawed at the board of Nasdaq OMX Group Inc: If Chief Executive Bob Greifeld were to leave, who would step into his shoes?
The transatlantic exchange operator has been working on an answer, according to several sources familiar with the situation. The board, along with Greifeld, has put together a list of internal and external candidates for the top job and is searching for at least one executive to add to senior management ranks with an eye toward succession planning.
As it looks at a spate of consolidation in the industry and Nasdaq's relatively low valuation, the board has also been debating more radical steps, such as splitting up the company or merging it with the London Stock Exchange Group or another exchange, the sources said. One of the attractions of a deal with LSE is its CEO, Xavier Rolet, who is seen as a strong leader to run a combined business, the sources said.
Besides Rolet, external candidates on the list include Adena Friedman, Nasdaq's former chief financial officer who left in 2011; Magnus Bocker, CEO of the Singapore Exchange Ltd; Craig Donohue, the former CEO of CME Group Inc who is taking a job at OCC, the clearing house for all U.S. stock options; Tom Kloet, the CEO of Canada's TMX Group Ltd; and Chris Concannon, formerly of Nasdaq, and now a partner at trading firm Virtu Financial.
Eric Noll, who runs execution services for the No.2 U.S. stock exchange, is the top internal candidate for the CEO role, the sources said.
Concannon, TMX and Singapore Exchange declined to comment. The other executives could not be reached for comment. A Nasdaq spokesman declined to comment on behalf of Greifeld and the company.
No change is imminent at Nasdaq. In fact, Greifeld, the 56-year-old executive who has run the exchange operator for more than a decade, signed a new, five-year contract last year and sources say he has no immediate plans to retire. He also has strong support from directors, who see recent high-profile glitches such as a three-hour-long trading halt last month as par for the course in a technology-driven industry and feel Nasdaq is unfairly singled out for its mistakes.
One source described these debates among directors as part of regular discussions that every public company board must have to do its job properly.
Still, these debates underscore what have been particularly rough patch for Nasdaq on several fronts. The unprecedented trading shutdown last month and the mishandling of Facebook Inc's market debut last year raised questions in the industry about Greifeld's future. The merger of Direct Edge and BATS Global Markets and NYSE Euronext's planned sale to IntercontinentalExchange Inc left Nasdaq as the odd-man out in an industry where scale is important to overcome high technology costs and thin margins.
To the board and management's frustration, investors have so far refused to credit Nasdaq for diversifying away from the low-margin stock exchange business and into less volatile and higher-margin technology and data-services businesses. Nasdaq now gets only about a quarter of its revenue from the stock exchange business.
But the company has the lowest multiple of any U.S. exchange because it is not perceived to have the high-growth derivatives volumes that ICE, CME, and CBOE Holdings Inc have, said Rich Repetto, an analyst at Sandler O'Neill.
Nasdaq trades at 11 times Sandler O'Neill's 2014 earnings estimates, while CME, CBOE and ICE are up around 20 times to 21 times 2014 estimates.
NYSE is at 15.4 times because it is being purchased by ICE, but even before that deal came about, the Big Board operator traded at a modest premium to Nasdaq because of its European derivatives complex.
The urgency of succession planning first hit the board in early 2011, when Friedman left to become the CFO of private equity firm Carlyle Group LP. Greifeld had been positioning Friedman as his successor, and her departure put a spotlight on the lack of depth in the management bench that remained.
Then, earlier this year, Carl-Magnus Hallberg, who headed Global IT Services at Nasdaq, also left to join Stockholm-based telecommunications provider TeliaSonera AB. He was also seen as a strong candidate with a leadership style similar to Greifeld's.
That left Noll as the top internal candidate for the role.
Some in the exchange industry question whether Noll has the chops to lead Nasdaq. He was hired to replace Concannon, and is an expert on market structure, but not as strong on the technology side of the business, sources said. Concannon left Nasdaq a little more than four years ago.
But Nasdaq's board has been impressed by Noll, who masterminded the exchange operator's $750 million purchase of electronic Treasuries-trading platform eSpeed that closed in July, sources said.
Before joining Nasdaq in 2009, Noll was a managing director at Susquehanna International Group. He also formerly led strategic development at the Philadelphia Stock Exchange, and had a similar role at the CBOE.
Nasdaq is still looking to deepen its management bench. Early this year, it combined its software and market technology units into a more than $500 million-a-year business. Sources said the company was actively seeking a senior executive to join that team, becoming another possible candidate for the job.
ACQUIRING A CEO
The discussion about succession planning has overlapped with the debate over the best way for the company to achieve higher valuations.
Earlier this year, the company reorganized its businesses to make the value of the different units more apparent to investors. The board has also debated the possibility of separating its trading and technology businesses, the sources said.
Another way is for the company to combine with another firm. Earlier this year the company held talks with private equity firms, including Carlyle and Hellman & Friedman, about a possible buyout, but talks broke down over price disagreements before they got serious.
Some of the sources said Friedman was involved in the discussions with Carlyle.
Industry sources say the LSE is now seen as the most likely buyer of Nasdaq. If it did so, there would be no succession issues, as LSE CEO Rolet would likely head the combined firm. Rolet has made a number of acquisitions at LSE, helping lift the company's market valuation in relation to its peers.
Singapore Exchange could also emerge as a potential merger partner for Nasdaq, the industry sources said. That deal, too, would solve the succession issue, with Singapore's CEO Bocker already being on the list of potential candidates.
(Additional reporting by Jessica Toonkel; Editing by Paritosh Bansal)