NYSE Shareholder Meeting — and Nasdaq Survival

There are reports circulating that Nasdaq/ICE will launch a tender offer for the NYSE after the NYSE shareholder meeting this Thursday. Here's my take.

First, there's little doubt they will launch a tender offer for NYSE after Thursday's board meeting. NYSE officials have made no secret that NYSE chief Duncan Niederauer will launch a spirited defense of the their decision to stay with the Deutsche Boerse proposal.

Nasdaq has to launch an aggressive bid, even if hostile. They have no choice: failure to win would leave Nasdaq itself vulnerable to a takeover, likely from Toronto/LSE (no love lost there), Singapore, or someplace else.

For Nasdaq, it is potentially about survival.

"NYSE will also be releasing its earnings report on Thursday. No one is expecting fireworks (trading volumes have been poor), but Nasdaq did manage to put out a good report, even with the weak volumes." -Trader Talk, Bob Pisani

That's why the meeting will be potentially contentious. Nasdaq will have proxies in the crowd. They will go after Niederauer's motives, as well as the board.

They will stand up and demand to know, why won't the NYSE meet with Nasdaq and discuss the deal? It's a good question.

First and most importantly, most at the NYSE (including those outside of top management) do not believe splitting up the businesses makes strategic sense.

Second, there is a long, difficult, and mostly hostile relationship between the NYSE and Nasdaq, going back to the very formation of Nasdaq 40 years ago. This makes it very difficult to "open the kimono" and allow Nasdaq to view NYSE's books, which would also give it access to NYSE's strategies. Should the bid not prevail, Nasdaq would have a good look at their competitor's inner workings.

This is not a trivial consideration: there's an old story told about General Electric's* failed bid for Honeywell , and how unhappy Honeywell was to give GE a good look at their inner workings for an offer that ultimately failed.

Next, many are wondering what DB can do to sweeten the offer without changing the terms? DB is in a bind: it is difficult for them to raise their offer because it requires 75 percent shareholder approval.

In lieu of that, there may be other sweeteners: the most obvious is a special cash dividend. Even here, the DB would be paying more to get less. A problem, but perhaps not insurmountable.

Another option is to provide more detail on merger related synergies. This week, Niederauer said there would be more cost savings, but was vague on the details.

Finally, the most important consideration is the drop-dead date: July 7. That's when NYSE Euronext and Deutsche Boerse shareholders vote. NYSE Euronext needs 51 percent of the vote; Deutsche Boerse needs 75 percent.

While NYSE will not comment, NYSE chief Duncan Niederauer has called most of the top shareholders personally to solicit their support.

They are certainly keeping score; however, it's likely most shareholders are remaining noncommital at this point, so it is difficult to gauge support for one proposal over the other.

One other point: NYSE will also be releasing its earnings report on Thursday. No one is expecting fireworks (trading volumes have been poor), but Nasdaq did manage to put out a good report, even with the weak volumes.

A final observation: Nasdaq today (Tuesday) released an interesting letter to NYSE shareholders, in which they offered to reduce the maximum listing fees for NYSE listed companies to $450,000 from $500,000 if Nasdaq succeeds in its takeover bid. Typical Nasdaq listing fees top out at about $100,000. This is an interesting offer, but it begs the question: if the Nasdaq succeeds in taking over the NYSE, why would anyone pay $450,000? Why wouldn't everyone top out at $100,000?

* General Electric maintains a minority ownership of NBCUniversal, the corporate parent of CNBC.

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