NYSE on sale: will the floor of the NYSE close if the Nasdaq/ICE bid succeeds? The Nasdaq/ICE bid is a clear long shot. The offer is valued at $42.50 per share, a mix of cash and stock, a premium of 19 percent to the price proposed by Deutsche Boerse.
There are two issues: the bidding war, and the regulatory side.
The bidding war. There is already a bid on the table. Deutsche Bourse is certainly not going to be surprised; it is very likely DB will up their bid. The big issue: how much of a stretch for ICE is it to up its bid.
Second, aside from a takeout offer, there is the question about what makes sense to shareholders. Nasdaq clearly believes that by being dramatic cost cutters they can improve the profitability of the stock trading business. I have no doubt they can, but how can they grow the business?
One of the big topics at the annual meeting of the New York Securities Traders Association yesterday was the awful trading volumes. Not only is stocks trading volume poor, even options volume is weak. Hard to make a case for a stand-alone stock trading business, even with an options arm thrown in.
The regulatory side:
a) Foreign ownership of the NYSE. This is already on the table...but the argument is pretty strong in favor of the deal: if the DB deal goes through, you have 55 percent U.S. based ownership (much of it owned by Blackrock and other U.S. investors), and a U.S. CEO.
b) And what about losing the storied NYSE name with the DB deal ? They likely will not lose it. They will create a holding company — Happy Global Trading Company, for example. They will have divisions: the New York Stock Exchange, and the Deutsche Bourse. The NYSE name will likely remain above the door.
c) Nasdaq/NYSE combination produces 100 percent ownership in listings, a clear antitrust concern. Nasdaq will counter by saying that BATS is now going into the listing business. Could they sell some listings to BATS? There is some precedence. On the NYSE floor, when Barclays wanted to buy LaBranche's floor business, Barclays was forced to sell some of the stocks they trade.
d) Will the NYSE floor close? Much is made of the "synergies" the deal would create. Here's the press release: "the combined companies would feature highly complementary lines of business with significant synergy opportunities. This would lead to meaningful value creation for the combined companies' stockholders, with an expected $740 million in total net synergies fully realized by the end of the third year following the closing of the transaction."
That is a lot of cost savings, and many believe this would mean the NYSE floor will be closing.
That, for the regulators, may be the tie breaker.
This might work for Nasdaq-listed companies, but it would be a hard sell for NYSE listed. Companies list on the NYSE for a reason — they like the brand, and they like being able to walk on a real floor, ring the bell and get interviewed. The difference: New York has a floor, Nasdaq has a TV studio.
You can bet Chuck Schumer is going to have a problem with THAT deal. Close the floor? Eliminate thousands of overlapping jobs? You think he's going to support this?
Two other points:
The breakup fee. It is officially $350 million breakup fee, but is likely much larger...if you include management severance fees that are likely built in.
Impact on the average investor: it really is unlikely to matter one way or the other. The average investor isn't dealing with the exchanges, he is dealing with his broker. They direct the trade to wherever they get the best price.
This is a shareholder-based transaction that brings cost synergies. The people it really affects is issuers. Companies will not take kindly to closing the floor.
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