Trader Talk

NYSE-Deutsche Boerse Merger: Not Dead...Yet


NYSE stock spiking up on reports that the EU Competition Commissioner will recommend a rejection of the proposed merger. (The NYSE said it would not comment on speculation.)

This is not surprising: NYSE officials have felt for more than a month that the staff would vote against them. They insist that the firms must divest one of their futures exchanges (LIFFE or Eurex), something the exchanges say they will not do.

NYSE and DB officials have been working on the politicians instead. The final decision is up to the 27 EU Commissioners, who will issue a final decision on February 9. The problem: the Commissioners rarely overturn the staff recommendations.

By the way, why did the stock spike up? In most mergers, the stock would go down. Likely reason: the NYSE may be worth more as a standalone company, and the stock price has been reflecting the increasing likelihood the deal would not be approved.

How so? Because the NYSE-DB deal is tied partly to the euro, which has been dropping dramatically for 3 months, while NYSE stock has moved sideways.

Do the math: NYSE shareholders get .47 times the Deutsche Boerse price of 40.39 euros, plus a 2 euro dividend if deal closes. With the euro at $1.27, the conversion price is about $25.30.

Since the deal was announced in February, the euro has been decimated: it was about $1.40, now at $1.27.

Bottom line: the deal is less compelling, because this is a double-down on Europe.

If the euro was where it was when the deal was announced, the conversion price would be $27.89 (around where the stock is trading now).

But wait a minute: the stock is trading at $27.60. It's already trading as if the deal had a lower chance of happening.

What is it worth alone? Rich Repetto at Sandler O'Neill thinks the company is worth $30 per share on a standalone basis.

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