Nasdaq is offering $42.50 (U.S.) a share for NYSE.STAN HONDA/AFP / Getty Images
The battle to control a landmark of American finance is heating up, part of a worldwide scramble by stock exchanges to increase their heft in a shifting environment.
The latest bid to own the parent company of the New York Stock Exchange comes not from overseas, but from a long-time rival across town and an upstart based in Atlanta.
On Friday, Nasdaq OMX Group Inc. joined with IntercontinentalExchange Inc. to launch a hostile offer for NYSE Euronext Inc., raising the stakes in the struggle to create a new trading behemoth.
The takeover drama began in February, when Germany's Deutsche Boerse AG agreed to buy NYSE Euronext in an all-stock deal valued at $35 (U.S.) per share. Nasdaq and ICE are sweetening the pot for NYSE Euronext's shareholders, offering the equivalent of $42.50 a share in a combination of cash and stock for a total value of $11.3-billion.
Few observers believe the story will end here. "We are about to experience another exchange bidding-war soap opera," wrote Patrick O'Shaughnessy, an analyst at Raymond James & Associates in a note to clients Friday. In the end, the shareholders of NYSE Euronext "are the clear winners."
Both sets of suitors have compelling reasons to pursue NYSE Euronext - and both face considerable hurdles before they can win their prize. A purchase by Deutsche Boerse would create a transatlantic powerhouse across markets for stocks, futures and options, while cutting $400-million in costs a year, the two companies have said.
Such a combination would also leave Nasdaq OMX Group searching for a partner in the latest frantic round of consolidation in the exchange industry, exemplified by the proposed merger between the owners of the Toronto and London stock exchanges.
In recent weeks, talk seeped into the media that Nasdaq would mount its own bid for NYSE Euronext. However, because of the complexity of the deal - which involved forging a partnership with ICE and arranging a war chest's worth of financing - it wasn't clear whether it would actually get done.
The latest offer would divide NYSE Euronext between the two acquirers. Nasdaq would grab the stock and options trading businesses while ICE would obtain the derivatives unit. An NYSE-Nasdaq amalgamation would have a lock on U.S. stock listings and account for a large share of the country's trading.
"Our industry is undergoing a period of historic change," said Robert Greifeld, Nasdaq's chief executive officer, in a statement. "The combination of the two leading U.S. exchanges delivers an opportunity to build a global exchange platform that has the scale and growth potential to benefit investors, issuers and other market participants."
Mr. Greifeld also has a reputation as a cost-cutter. Friday's bid would result in $740-million in savings, Nasdaq and ICE said, in the three years after the deal closed.
NYSE Euronext responded with caution. The company's board "will carefully review the proposal," it said, and urged shareholders not to take any action on the offer. Deutsche Boerse, meanwhile, said it strongly believes that its bid remains "the best possible combination" for shareholders.
Both bids raise potential anti-trust concerns and could provoke opposition from regulators. A deal with Deutsche Boerse would create a dominant player in Europe's futures markets, for instance, while a combination with Nasdaq would produce a monopoly on U.S. stock listings.
There are other frictions, too. NYSE Euronext and Nasdaq have competed for years, producing an intense rivalry that sometimes extends to their shareholders. "There you have some egos involved," said Thomas Caldwell, chairman and chief executive officer of Caldwell Securities Ltd. in Toronto, which owns shares of both exchanges. "Like it or not, there has been bad blood for some time."
Still, he added, an attractive proposal like the one from Nasdaq and ICE has a way of overcoming such obstacles. "Financially, on a near-term basis, this is a superior offer," Mr. Caldwell said. But if Deutsche Boerse decides to include a cash component in its bid and up the price, it "would put them back in the game again."
Experts said that the managements of NYSE Euronext and Deutsche Boerse - together with their teams of bankers and lawyers - will now scrutinize their options as they decide how hard to fight the counter-offer.
Bidding wars don't erupt very often, notes Robert Profusek, head of global mergers and acquisitions at law firm Jones Day. The exceptions are when the initial offer is too cheap or when the target represents something truly rare. NYSE Euronext "fits neatly in the latter category, so it may well be that the best is yet to come," he said.