Duncan Niederauer’s wish for NYSE Euronext (NYX)’s takeover by Deutsche Boerse AG (DB1) to be a merger of equals may be coming true -- at the expense of shareholders in the Frankfurt-based exchange.
Nasdaq OMX Group Inc. (NDAQ) and IntercontinentalExchange Inc. (ICE)’s unsolicited bid last week for NYSE Euronext valued the operator of the New York Stock Exchange at $42.50 a share, topping a February offer from Deutsche Boerse by almost 20 percent. Without committing any cash, the German exchange could be forced to surrender as much as 45 percent, up from about 40 percent, of the combined entity to NYSE Euronext’s owners to trump the Nasdaq OMX-ICE bid, according to data compiled by Bloomberg and Capstone Global Markets LLC.
While a bidding contest would help Niederauer, NYSE Euronext’s chief executive officer, recoup money for investors that lost more than 40 percent since the exchange went public in 2006, Deutsche Boerse’s all-stock offer has already cost the German exchange’s owners $1.4 billion since it was announced. Now, they face giving up even more equity if their managers counter Nasdaq OMX and ICE, which may push Deutsche Boerse to bid as much as $46 a share, the data show.
“If Deutsche Boerse were to engage in a bidding war, their shareholders will likely come out with the short end of the stick,” said Michael Wong, a Chicago-based analyst at Morningstar Inc. “NYSE shareholders would be the ultimate beneficiaries of the bidding war, with the acquirers being saddled with the winner’s curse.”
‘The Right Thing’
NYSE Euronext is studying the Nasdaq OMX-ICE bid, according to a letter from Niederauer, 51, to employees contained in a filing with the Securities and Exchange Commission last week.
“NYSE Euronext has always been committed to our shareholders, and our board will consider the new proposal and do the right thing for our shareholders,” he wrote. “In the meantime, we remain fully committed to our previously announced deal with Deutsche Boerse.”
Deutsche Boerse doesn’t plan to raise its bid, Die Welt reported in an advance release of a story to appear today, citing an unidentified person close to the situation.
Frank Herkenhoff, a spokesman for Deutsche Boerse, didn’t immediately respond to a message left on his mobile phone outside normal office hours. The company’s offer for NYSE Euronext is “the best possible combination for both shareholder groups and the stakeholders of the companies,” Deutsche Boerse said in a statement last week.
Nasdaq OMX Shares
Last week’s offer from Nasdaq OMX’s Robert Greifeld, 53, and ICE CEO Jeff Sprecher, 56, lifted New York-based NYSE Euronext 13 percent to $39.60 on April 1. Nasdaq OMX rose 9.3 percent to $28.23 for the biggest gain since March 2009, while Deutsche Boerse fell 1.4 percent to 52.81 euros ($75.19).
The German exchange, led by 55-year-old Reto Francioni, has declined 14 percent since Feb. 14, the day before it and NYSE Euronext announced their deal. The slump has lowered the value of its all-stock offer to $35.44, or 11 percent less than NYSE Euronext’s closing price last week.
Deutsche Boerse offered 0.47 of its own stock for each NYSE Euronext share in a deal currently valued at $9.3 billion to create the world’s largest exchange operator with venues in the U.S. and Europe.
At the time the deal was announced, Niederauer said on a conference call it was a “merger” with Deutsche Boerse, rather than an acquisition by the German exchange.
‘How Many More’
“I don’t know how many more times we can say that,” Niederauer said.
Last week, New York-based Nasdaq OMX and ICE of Atlanta made a cash-and-stock offer that valued the 219-year-old exchange operator at about $11.3 billion, Bloomberg data show.
NYSE Euronext owners will get 0.4069 Nasdaq OMX share, 0.1436 ICE share and $14.24 a share in cash, valuing the transaction at $42.50 on March 31. Currently, the offer is worth about $42.92 a share, the data show.
ICE would purchase NYSE Euronext’s Liffe futures markets, while Nasdaq OMX would keep its U.S. options markets. The deal would give Nasdaq OMX a monopoly on listing companies in the U.S., the world’s largest capital market.
Nasdaq OMX, the second-largest U.S. bourse operator, and ICE said they will eliminate about $740 million in expenses in three years. That’s 74 percent more than Deutsche Boerse predicted in its agreement.
‘One and Only’
“Deutsche Boerse has been very clear about this being the one and only deal for them,” said Ian McDonald, a Baltimore- based exchange analyst at T. Rowe Price Group Inc., which oversees $482 billion and is NYSE Euronext’s biggest shareholder. “To get it done, they have to raise their synergies and their price.”
Deutsche Boerse’s current offer gives its owners about 60 percent of the combined company, the data show.
While Deutsche Boerse could raise its bid to $54.13 and still retain a 51 percent stake, data compiled by Bloomberg show, issuing the additional shares would devalue its own stock as currency, according to Capstone Global’s Sachin Shah.
Without offering cash, retaining at least a 55 percent stake would keep Deutsche Boerse from increasing its bid above $45.86, based on last week’s closing price, the data show.
“The higher the stake they give up, the more control they’re giving up,” said Shah, a special situations and merger arbitrage strategist at Capstone Global in New York. “It becomes a little problematic not only in the context of shareholder value for their shareholders, but also the Germans are probably kind of wanting them to have significant control.”
‘The Only Game’
“At the end of the day they don’t want a U.S.-based company to be running a German exchange,” Shah said. Still, “the only game they can play is upping the offer,” he said.
Speculation of a bidding war for NYSE Euronext made it one of the stock market’s biggest winners in 2011. The shares have posted the 13th-biggest gain in the Standard & Poor’s 500 Index, rising 32 percent. The exchange is up 155 percent since the market bottomed on March 9, 2009, compared with a 97 percent advance in the S&P 500, according to data compiled by Bloomberg.
NYSE Euronext shares have still trailed the S&P 500 by more than 45 percentage points since its first trading session as a public company in March 2006. The company has fallen 64 percent from a record peak of $108.96 in November 2006. Losses in market share and pricing spurred by competition in equities trading weighed on the price, according to Morningstar’s Wong.
Overall, there have been 6,113 deals announced globally this year, totaling $603.3 billion, a 19 percent increase from the $504.9 billion in the same period in 2010.
source:bloomberg.com
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