Despite that NYSE refused NASDAQ’s $11.3 billion take over offer earlier last week, NASDAQ OMX Group Inc. (NDAQ) appears to still be very game to merge with NYSE Euronext Inc. (NYX). On Friday, NYSE was reported to be open to selling its American Stock Exchange (Amex) in order to mitigate an antitrust concern, which was one of many reasons for NYSE’s refusal.
Last Monday, NYSE affirmed its $10.0 billion merger deal with Frankfurt-based Deutsche Boerse AG, discarding NASDAQ and IntercontinentalExchange Inc.’s (ICE) rival bid of $11.3 billion, citing multiple concerns. The NYSE management cited that it is not interested in splitting up the company’s business while also extending additional debt burden on the merged company, thereby posing ample execution risk on the company.
NYSE-NASDAQ: A Viable Option?
While turning down a deal of much higher value, NYSE elucidated on the various regulatory, political and commercial hurdles that the NASDAQ-NYSE merger could pose. The proposed merger of the two big giants in the US would pose antitrust problems since the merger of NASDAQ and NYSE would mean erosion of competition, giving way to a monopolistic structure.
According to Barclays plc (BCS), accounting for more than 27% of the equities trading volume, NYSE Euronext leads by operating through New York Stock Exchange and NYSE Amex and NYSE Arca in the US. Amex and Arca trade in exchange-traded funds. NASDAQ holds the second position with 19% of the equities trading volume.
Other predicaments include loopholes in NASDAQ’s financing commitments along with the potential debt burden that would be mounted following the deal. Alongside, the debt burden associated with the proposed deal has also driven rating agencies Moody’s and Standards and Poor’s to lower their outlook on NASDAQ from stable to negative last week. Additional concerns about the bulk layoffs have also been raised, which could adversely impact the unemployment index.
Further, any counter-bid in the NYSE-Deutsche deal also appeared restrictive since the agreement of the deal includes a $337 million break-up fee in case the deal is spoilt by a new bidder and tax issues, among others. Hence, given these multiple risks associated with the deal, the board of NYSE decided to turn down NASDAQ and ICE’s joint bid.
NASDAQ-ICE Convincing NYSE Investors
Without being bogged down by the rejection and losing hope, the management of both NASDAQ and ICE have been trying their best to convince the investors of NYSE and persuade them to get approval for the deal, which they vouch is not only financially superior, but that the amalgamation will be immediately accretive with a powerful operating efficiency.
Hence, NASDAQ is also considering unleashing NYSE’s equity business in the US in order to smoothly tackle regulatory hurdles from the Department of Justice (DoJ) and other authorities. It is feared that regulators may oppose the concentration of all the US equities under one company with leading market share. NASDAQ has even been reported to snip the annual listing fees for the largest companies by $50,000 to $450,000, while also agreeing to cap fees on others for a while.
NASDAQ-ICE-NYSE Deal
Beginning April, NASDAQ and ICE had offered $43.13 per NYSE share in a joint bid, one-third in cash and two-third in stock, totaling to approximately $11.3 billion. NASDAQ and ICE had planned to finance the cash portion of the deal through cash on hand and a combined financing of $3.8 billion.
While ICE was expected to take over NYSE’s European futures markets (Liffe, Liffe U.S.) and the over-the-counter clearing business (NYPC), NASDAQ was expected to take care of the remaining businesses of NYSE, such as the NYSE Euronext stock exchanges in New York, Paris, Brussels, Amsterdam and Lisbon as well as the U.S. options business.
On the other hand, NASDAQ fears that the culmination of NYSE-Deutsche 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 revenues, more than any other exchange group.
Industry Trends
Recently, the stock exchange industry has aligned itself with the changing market needs and has consequently become a hub for M&A activities. More than $20 billion of proposed acquisitions have been announced in the last six months. While the London Stock Exchange (LSE) is on its way to complete a merger with Toronto Stock Exchange owner TMX Group, the Singapore Exchange and Australia’s ASX is also rigorously reviewing its own merger plan.
Overall, we believe that uncertainty prevails over most of the exchange operator’s future course of action. The sudden business restructuring in the stock exchange industry reflects the pressing 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 dig in opportunities for gaining scale.
BARCLAY PLC-ADR (BCS): 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
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