Nasdaq OMX has teamed up IntercontinentalExchange (ICE) to make an $11.3bn offer for NYSE Euronext. Here is some early comment on the deal.
Bob Greifeld, chief executive of Nasdaq OMX: “I never thought we’d get the opportunity to bid for NYSE. I was surprised when we got the chance. We will deleverage in around 18 months, then look at a capital return programme that could include dividends.
“We think these steps will be positively received by all. We’re keeping the NYSE floor. There should be no scepticism about that statement.”
“The synergies comes from consolidating the platforms. We have the ability to process every transaction on our processors.”
Jeff Sprecher, chief executive and chairman of ICE: “I have become convinced that this is the right thing for the market and the right thing for ICE shareholders. This merger is about who can take cuts out of the business. Bob [Greifeld] and I have engineered a deal that does it much better.”
On the creation of ICE-NYSE Liffe
Jeff Sprecher: “I see Liffe better as a nimbler competitor to Deutsche Börse and CME Group. It would also allow London to remain a competitor on the derivatives world. It would be creating a strong global derivatives player but not a dominant one. It would bring [into Europe] a new asset class of interest rates clearing.”
Diego Perfumo, analyst at Equity Research Desk: “The New York-Deustche Borse deal didn’t change the landscape for ICE. But when somebody like Nasdaq comes in, it creates an opportunistic deal for ICE. The deal terms are will within what synergies ICE can achieve. They may be paying a bit more than expected, but they are getting more too, such as parts of the equity derivatives business. ICE and Liffe have significant cost synergies in Europe, and some potential revenue syergies in the US as well. Oil traders can now trade interest rate derivaitves with them, too.”
On prospects for a renewed offer from Deutsche Börse
Analysts at Citi: “Deutsche Börse could support €666m additional borrowings, or $940m, which is 27 per cent above valuation before the Deutsche Börse offer. Adding in 50 per cent existing on balance sheet cash resources, we believe Deutsche Börse could offer an extra $6 per share, enabling them to match Nasdaq-ICE’s offer. Nasdaq/ICE is targeting $740m synergies by the end of the third year – $540m from Nasdaq/NYSE combination, $200m from ICE/Euronext. This compares to Deutsche Börse’s €300m cost synergies and €100m revenue synergies. But we believe Deutsche Börse and NYSE were lowballing the synergies achievable.”
Market share and effect on US equity trading
Thomson Reuters: Nasdaq and NYSE Euronext account for 51.75 per cent of all reported US equity trading in 2010. That is almost 5 times the size of the next biggest exchange, BATS, with 11.45 per cent.
Additionally, the data shows that in global terms the combination would represent 33.7 per cent of all reported activity in US, European & Asia stocks compared with the 22.4 per cent share that the combination of Deutsche Börse & NYSE Euronext represents.
Anthony Conroy, head of trading at BNY ConvergEx said: “One centralised exchange would help alleviate the fragmentation of US equity trading.”
Sang Lee, managing partner at Aite Group: “In the short team, it makes sense to consolidate US cash equities trading and a combined Nasdaq and NYSE would give them a decent position in US equity options.”
“The move by Nasdaq is not a surprise and you have to think both NYSE and Deutsche Börse have a contingency plan to counter this.”
“In my mind ICE looks the potential winner as it gives them an instant entry to derivatives outside the US. Liffe is not a small piece of the puzzle; it puts them on a par versus CME and Eurex [part of Deutsche Börse].“
Diego Perfumo, analyst at Equity Research Desk: “As a shareholder, I might feel more comfortable waiting for someone like LSE or Singapore to come in and buy Nasdaq in two years, avoiding the significant execution risk in integrating the platforms and trying to deleverage.”
Patrick O’Shaughnessy, analyst at Raymond James: “The only clear winner here is NYX [NYSE] shareholders. We are sceptical about the upside for Nasdaq OMX…. Although Nasdaq OMX will certainly be able to create substantial synergies and more operating scale, an acquisition of NYSE Euronext’s US equities and options businesses would represent a doubling down on businesses that are currently out of favour with investors.”
“Another failed hostile bid might be frowned upon by [ICE] investors,” he added.
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