NYX Nyse Euronext

NYSE Euronext Inc. (NYX) has again rejected the joint takeover bid from NASDAQ OMX Inc. (NDAQ) and IntercontinentalExchange Inc. (ICE) for the second time within a fortnight, thereby backing the more friendly $9.8 billion merger deal with Frankfurt-based Deutsche Boerse AG that was agreed upon in February this year.

While NYSE believes that the latest NASDAQ-ICE proposal did not offer anything striking, its prior deal with Deutsche Boerse will be able to provide almost as much cost savings as the NASDAQ-ICE deal. The recent estimates project about €400 million of cost savings in the NYSE-Deutsche deal, along with a €100 million benefit from cross-selling and distribution opportunities, all summing to $725 million. This is almost equivalent to $740 million of cost syn ergies estimated by NASDAQ in the last offer.

NYSE-NASDAQ-ICE Story

The story dates back to April 1, 2011, when NASDAQ and ICE announced a joint bid to take over NYSE offering $43.13 per NYSE share, one-third in cash and two-thirds in stock, totaling approximately $11.3 billion. This was about 21% higher than the earlier proposed merger between NYSE and Deutsche Boerse that was worth $10.0 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.

However, on April 8, 2011, NYSE refused the offer citing various regulatory, political and commercial hurdles that the NASDAQ-NYSE merger could pose. Along with antitrust concerns, NYSE did not show much interest in splitting the company’s business while also extending additional debt burden to the merged company, thereby posing ample execution risk.

Other predicaments include loopholes in NASDAQ’s financing commitments along with the potential debt burden that would mount following the deal. Additional concerns about the bulk layoffs have also been raised.

Further, any counter-bid in the NYSE-Deutsche deal also appeared restrictive since the agreement for 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.

Nevertheless, on April 19, NASDAQ and ICE announced a renewed takeover offer for NYSE with fresh commitments. Accordingly, the joint parties for the bid claimed that its $11.3 billion offer is financially superior and is consistent with the terms of NYSE’s existing merger agreement with Deutsche Boerse AG.

Besides, NASDAQ and ICE offered to pay a reverse break-up fee of $350 million, in the event that they are unable to obtain necessary antitrust and competition approvals from the regulators in the U.S.

The joint parties have also committed a full $3.8 billion financing from a syndicate of banks including Bank of America Corp. (BAC), Nordea Bank AB, Skandinaviska Enskilda Banken AB and UBS Investment Bank of UBS AG (UBS). ICE has signed and has received full commitment of financing from a syndicate of banks including Wells Fargo & Co. (WFC) and Bank of America. NASDAQ OMX and ICE remain committed to the prudent use of leverage to finance the transaction.

Additionally, actions necessary to start the U.S. antitrust review processes have been initiated by NASDAQ and ICE. Those reviews are expected to commence shortly. Particularly, NASDAQ remains focused on maintaining its investment-grade credit rating.

Disappointment Remains

However, upon the fresh rejection from NYSE on Thursday, NASDAQ and ICE responded by claiming their deal value to be superior to Deutsche Boerse. Based on the closing price as on April 20, the NASDAQ-ICE proposal is valued at $42.69 per NYSE share.

This is 15% or $1.4 billion above $37.26 per NYSE share under the proposed Deutsche Boerse merger deal. However, other proposals remain the same.

Moreover, NASDAQ and ICE argue that the Deutsche Boerse deal does not carry any reverse break-up fee like the $350 million provided by the former parties, upon their failure to obtain antitrust regulatory approvals. Both NASDAQ and ICE are now hell-bent to acquire NYSE and are leaving no stone unturned to achieve the objective.

The joint bidders have also appealed the US government, regulators and financial heads to support this offer as it would help in building the largest global stock exchange in the US itself.

As if this was not enough, NASDAQ and ICE are all ready to approach the NYSE’s investors if the board of NYSE refuses to give a thumbs-up to the deal. On the other hand, NYSE has shown the least interest in the NASDAQ-ICE deal and is sincere about backing its merger with Deutsche Boerse. The vote on the Deutsche Boerse deal is scheduled on July 7, this year.

Besides, a dramatic turn of events has been witnessed in other global mergers too. Earlier this month, the Australian government blocked the Singapore Exchange's $8 billion bid for the Australian Exchange, citing modification requirements in the country’s financial policies before foreigners could buy the exchange.

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 to opportunities for gaining scale.

 
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
 
UBS AG (UBS): Free Stock Analysis Report
 
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
 
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