* Total consideration for deal is up to $1.23 bln, including
earnout to be paid over 15 years
* Deal expected to add to Nasdaq's earnings within 12 months
* Moody's reviewing Nasdaq Baa3 bond rating for a possible
By John McCrank
April 1 Nasdaq OMX Group Inc agreed to
buy electronic Treasuries-trading platform eSpeed from BGC
Partners Inc for $750 million in cash, providing the
exchange operator an entry into one of the world's largest and
most liquid cash markets.
The deal gives Nasdaq more exposure to fixed income markets,
fitting into the company's strategy of expanding in asset
classes beyond stock trading, where volumes have been depressed
More than $500 billion in U.S. Treasuries change hands
The acquisition helps to diversify Nasdaq's U.S. offerings,
said Christopher Allen, an analyst at Evercore Partners.
"You always want some asset class diversification which
Nasdaq really doesn't have in the U.S., where they just have
cash, equity and equity options," he said.
Nasdaq plans to offer customers increased access to fixed
income products and a greater variety of trading instruments as
a result of the acquisition, Chief Executive Robert Greifeld
said on a call with analysts.
The total consideration for the deal is up to $1.23 billion,
including an earnout provision that could pay out up to $484
million in Nasdaq OMX common stock over 15 years, BGC said.
Greifeld and Howard W. Lutnick, chairman and CEO of BGC
Partners, have been in informal talks about a possible deal for
the past few years, according to two sources familiar with the
situation, who declined to be identified because they are not
allowed to speak to the media.
But these people said the conversations heated up late last
year after IntercontinentalExchange Inc announced it was
buying Nasdaq rival NYSE Euronext for $8.2 billion.
Two spokeswomen for BGC were not immediately available to
comment. Nasdaq had no comment.
BGC was spun off from Cantor Fitzgerald in 2004.
Nasdaq said last month it planned to create a market for
trading shares of unlisted companies in a joint venture with
trading platform SharesPost Inc. And it announced in December it
was buying Thomson Reuters Corp's investor relations,
public relations and multimedia services units for $390 million.
PUSHING THE ENVELOPE
The eSpeed deal is expected to add to Nasdaq's earnings
within the first twelve months after closing - expected by
mid-2013 - the exchange operator said.
The risk for Nasdaq, however, is that it is buying eSpeed at
a time when trading Treasuries might be at a cyclical low,
Evercore's Allen said.
The U.S. Federal Reserve has been buying large amounts of
Treasuries through its quantitative easing program. The result
is that rates have stayed low and volatility and trading volume
have been capped.
Greifeld, however, said government intervention would
eventually cease, leading to a positive impact on volume. The
United States is also issuing more debt, boosting the market for
Treasuries, he said.
Most Wall Street economists do not expect the Fed to begin
curtailing its asset purchases for another year. Short-term
interest rates, which have been stuck near zero since December
2008, are not forecast to rise until 2015, the Fed's latest
Nasdaq currently offers Treasury options trading in the
United States and is close to launching NLX, a Europe-based
fixed-income futures trading platform to compete with Deutsche
Boerse AG-owned Eurex and NYSE's London-based Liffe.
The deal differentiates Nasdaq in fixed income from other
exchange operators, which have mainly been focused on interest
rate swap clearing and swaps-like futures trading, said Will
Rhode, a fixed income analyst at Tabb Group. "We really see
Nasdaq pushing the envelope on different approaches to the fixed
income markets," Rhode said.
Nasdaq plans to spend the next several weeks talking to
customers and learning about what other products they want to
access on an electronic trading platform, Greifeld said. "The
easiest low hanging fruit is in the U.S. Treasury marketplace,"
Nasdaq expects to fund the purchase with cash on hand and
Following the deal, Moody's Investors Service said it was
reviewing Nasdaq's Baa3 bond rating for a possible downgrade.
Deutsche Bank was Nasdaq's financial adviser on the deal.
Shares of Nasdaq closed down 0.9 percent at $32.01 on
Monday. The deal was announced after the market closed.
Shares of BGC were up 92 percent in after-hours trading
following the deal's announcement.