April 1, 2011 / 11:19 AM / 6 years ago

UPDATE 9-Nasdaq, ICE bid to snatch NYSE from Germans

Greifeld promised shareholders far bigger cost savings than in the German deal, but he did not say how severe the job losses would be. He said Nasdaq would keep the NYSE floor -- the icon of capitalism that was created in 1792 by brokers and merchants who met under a buttonwood tree in lower Manhattan.

Upstart trading venues like BATS have eaten deep into the market share of these traditional venues, forcing them in the last decade to upgrade and embrace electronic trading -- and to look to mergers to survive.

Nasdaq, the smallest of the four exchanges in play, needed to do something to stay relevant in the years ahead, some said. If it and ICE succeed, the world's largest bourse operators would be headquartered in the United States, Brazil, and Asia -- leaving Europe with a bruised Deutsche Boerse.

"Nasdaq had a real risk of being marginalized," said David Weild, founder of Capital Markets Advisory Partners and former vice chairman at Nasdaq, in the corporate client division.

Under the proposal, Atlanta-based ICE would purchase NYSE's London-based Liffe platform, seen as a profitable gem, while Nasdaq would acquire its stock exchanges in New York, Paris, Amsterdam, Brussels, and Lisbon, its U.S. options venues and its technology suite.

Some details of how a deal would work have not yet been worked out. The management and the board of directors have not yet been determined, Greifeld said, adding he hadn't spoken to Niederauer or other NYSE executives.

But a group of banks led by Bank of America and Wells Fargo is prepared to arrange $3.8 billion of financing for the cash portion of the deal, Nasdaq and ICE said.

"From a purely nationalist point of view, as an American, a lot of people are going to say yeah, yeah, yeah, that's great," said Kenneth Polcari, managing director at ICAP Corporates, a NYSE floor broker. "But from a business point of view ... from a true global perspective, the Deutsche Boerse is probably the better option."

NYSE shares closed up 12.6 percent at $39.60, while Deutsche Boerse closed down 1.4 percent in Frankfurt. Nasdaq shares rose strongly through Friday to close at $28.23, up 9.2 percent, while ICE shares slipped 3.1 percent to $119.75.

BIDDING WAR?

Borse Dubai, Nasdaq's largest shareholder, and Sweden's Investor AB, the second-largest, said they backed the bid.

Deutsche Boerse said it "continues to strongly believe that the envisaged merger of Deutsche Boerse AG and NYSE Euronext is the best possible combination for both shareholder groups and the stakeholders of the companies."

NYSE Euronext said its board would "carefully review" the new offer and urged shareholders not to take any action pending its review. A source said there was some "shock" that the cash portion of the counterbid was so small.

"If I were at New York and Deutsche Boerse, I'd be thinking we don't have to match the price, we just have to build up the cash component a bit," said Thomas Caldwell, CEO of Caldwell Securities Ltd, a NYSE shareholder.

There is a steep 250 million euro ($356 million) termination fee attached to Deutsche Boerse's friendly deal.

Moody's Investors Service said Nasdaq's announcement makes the agency more likely to cut the company's debt ratings to junk over the medium term, while Standard & Poor's said that it might cut the exchange's ratings to junk in the near term.

Two junk ratings could create a headache for the combined exchange, because NYSE bondholders would have the right to force the company to buy back their $2.1 billion of debt. Nasdaq could be forced to raise even more money.

In Liffe, Sprecher would get an interest-rate business that eluded him when ICE's bid for the Chicago Board of Trade failed four years ago, and a successful deal could put pressure on chief rival CME Group Inc (CME.O). ICE's market cap is $9.2 billion, about in line with NYSE Euronext.

For Nasdaq, with a $4.5 billion market cap, the deal would expand its core, albeit low-margin, stock-trading business, and could raise questions for shareholders well aware that the other exchange deals are driven largely by a need to diversify into more profitable derivatives trading.

EGOS AND OFFERS

Nasdaq was created in 1971 as the world's first electronic stock market by members of National Association of Securities Dealers frustrated by the Big Board's slowness to embrace new technology, and seeking to pressure trading costs.

The vast majority of North American and European stock trading is now high-speed and all-electronic, with Nasdaq and NYSE boasting some of the world's best technology.

In a flurry in February, Deutsche Boerse agreed to buy NYSE, the London Stock Exchange Group Plc (LSE.L) announced a deal for Canada's TMX Group Inc (X.TO). Last year, Singapore Stock Exchange bid for Australia's ASX Ltd (ASX.AX).

When Deutsche Boerse bid for NYSE, CEO Reto Francioni acknowledged "we have a bumpy road ahead of us." Some observers say his career hinges on winning NYSE. [ID:nLDE71L17C]

Intensifying the merger race, regulators want to run much of the private swaps market though transparent venues in the wake of the financial crisis, an opportunity for exchanges.

Under the counterbid, NYSE shareholders would receive $14.24 in cash plus 0.4069 of a share of Nasdaq stock. The Deutsche Boerse proposal would exchange each NYSE Euronext share for 0.47 share of the combined company's stock.

Nasdaq and ICE said that within 12 to 18 months, the combined franchise would provide "double-digit accretion" to shareholders and save $740 million in annual operating costs. The Deutsche Boerse deal sees $400 million in cost savings and that immediately add to adjusted earnings.

Bank of America Merrill Lynch and Evercore Partners are advising Nasdaq, while Lazard, Broadhaven Capital Partners, and BMO Capital Markets Corp are advising ICE. (Additional reporting by Edward Taylor in Frankfurt, Sarah Lynch and Diane Bartz in Washington, and Phil Wahba, Jonathan Stempel, Paritosh Bansal, Edward Krudy, Clare Baldwin, Ben Berkowitz and Daniel Wilchins in New York, editing by Dave Zimmerman, Gary Hill and Tim Dobbyn)

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