To put forth a stronger bid for NYSE Euronext Inc. (NYX), NASDAQ OMX Inc. (NDAQ) is reportedly seeking lenders to fund the possible bid, which has been already offered more than $9 billion from Deutsche Boerse, last month.
According to the sources, Nasdaq has decided to make an offer of about $5 billion in debt from lenders led by Bank of America Corporation (BAC) and $5 billion in asset sales. Nasdaq has also involved IntercontinentalExchange Inc. (ICE), which is planning to take NYSE Euronext’s European assets.
Recently, the stock exchange industry has picked up pace with the changing market needs to cut costs and offset lower profitability from equities and consequently become a hub for merger and acquisition (M&A) activities.
But the report of NYSE Euronext – Deutsche Boerse deal on February 15 has been ground-breaking for NASDAQ, who is now desperately trying to retain its market value and strength in the industry. NASDAQ is also weighing other options of acquisitions or itself be acquired.
NASDAQ fears that the culmination of NYSE Euronext-Deutsche Boerse deal will diminish the former’s size and global footprint. The prospective deal’s combined exchanges and clearing houses would generate an annual €4.0 billion ($5.5 billion) in revenue, more than any other exchange group.
Additionally, the combination of NYSE Euronext-Deutsche Boerse is expected to achieve extra savings of at least €100 million ($135 million), besides the synergies of €300 million, through cross-selling of products. This would also out beat all the exchange operators with the largest derivative business, representing 37% of net revenue against NASDAQ’s 17% of net revenue as reported in 2010.
Hence, NASDAQ would either make a rival bid for NYSE Euronext or agree to merge with another international exchange, such as the London Stock Exchange Group Plc (LSE), as it is not possible for NASDAQ or ICE to buy NYSE Euronext individually and a lot of hurdles await the possibility of making a deal happening even if the companies bid jointly for NYSE.
Besides, London Stock Exchange has been eyeing on NASDAQ after its merger with Toronto Stock Exchange owner TMX Group Inc. (X) on February 9. Moreover, Singapore Exchange Ltd. (SGX) had bid for ASX Ltd. (ASX) in October, 2010.
Meanwhile the Chicago Board Options Exchange (CBOE), and significant international market operators, like the BM&F Bovespa in Brazil, is also exploring potential M&A options.
The NYSE Euronext-Deutsche Boerse deal is currently undergoing rigorous sessions of investigations by regulatory authorities. As per the terms, shareholders of the German exchange would control 60% of the new company and 10 of 17 board seats. If the deal gets finalized, it could raise concerns in the U.S. as NYSE Euronext will lose influence and independence.
We believe that uncertainty prevails over most of the exchange operator’s future course of action and the sudden business restructuring in the stock exchange industry reflects the rapid need to respond to the changing dynamics of modern finance.
These are primarily driven by the increased demand for greater international services and intense competition, which have led the traditional exchange companies to seek ways to gain scale and services.
NASDAQ is expected to comply with these changing requirements and the act of mulling over options just like other exchange operators.
BANK OF AMER CP (BAC): Free Stock Analysis Report
INTERCONTINENTL (ICE): Free Stock Analysis Report
NASDAQ OMX GRP (NDAQ): Free Stock Analysis Report
NYSE EURONEXT (NYX): Free Stock Analysis Report
Zacks Investment Research
