Nasdaq, ICE Top Deutsche Boerse With $11.3 Billion NYSE Bid

Nasdaq OMX Group Inc. (NDAQ) and IntercontinentalExchange Inc. (ICE) made an unsolicited bid of about $11.3 billion for NYSE Euronext, trying to snatch the owner of the New York Stock Exchange away from Deutsche Boerse AG. (DB1)

Nasdaq OMX and ICE offered $42.50 in cash and stock for each NYSE Euronext share, according to a statement released today. The shares closed at $35.17 yesterday. Deutsche Boerse’s February all-stock agreement to purchase NYSE Euronext values the company at about $35.04 a share.

The union of NYSE Euronext and Nasdaq OMX would join the two largest U.S. exchange operators, giving the combined entity a monopoly for company stock listings in the world’s largest capital market. As part of the deal, ICE would purchase NYSE Euronext’s Liffe futures markets, while Nasdaq OMX would keep its U.S. options markets. The Deutsche Boerse deal, valued at $9.53 billion when announced in February, creates the world’s largest exchange operator with venues in the U.S. and Europe.

“What would you pay for the Mona Lisa?” Dick Grasso, the former chairman and chief executive officer of the New York Stock Exchange who was forced to quit in 2003 after receiving $140 million in pay, said in a Bloomberg Television interview today. “I wouldn’t look at this proposal from Nasdaq to be its final bid,” he said. Nasdaq OMX’s Robert Greifeld is a “very capable CEO and isn’t going to put out his final offer because he knows Deutsche Boerse is going to outbid him.”

Stock Prices

NYSE Euronext shares surged 11 percent to $38.98 at 9:59 a.m. in New York, while Nasdaq OMX rose 2.2 percent to $26.40. Both companies are based in New York. ICE, based in Atlanta, slumped 3.8 percent to $118.90, and Deutsche Boerse of Frankfurt slipped 0.8 percent to 53.14 euros. Through yesterday, Deutsche Boerse had fallen 6.8 percent and NYSE Euronext climbed 5.3 percent since Feb. 8, the day before the two companies said they were negotiating about a merger.

Deutsche Boerse’s bid for NYSE Euronext is “the best possible combination for both shareholder groups and the stakeholders of the companies,” Deutsche Boerse said in a statement. Richard Adamonis, a NYSE Euronext spokesman, declined to comment.

‘Make More Sense’

“The DB-NYSE deal would be better for the market and for customers, so economically it would make more sense,” said Christian Muschick, an analyst at Silvia Quandt & Cie. in Frankfurt. “Splitting up the business between Nasdaq and ICE doesn’t sound very sexy. Honestly I wouldn’t understand why Nasdaq shareholders should like this proposal. Nevertheless, discussions will now start and of course first it will be bad for DB’s share price and clearly good news for NYSE stock.”

Under the terms of the bid, Nasdaq OMX would buy NYSE Euronext’s equity and options trading and technology businesses, while ICE purchases its futures operations. Nasdaq OMX and ICE will continue to operate as separate businesses, according to today’s statement. Nasdaq OMX Chief Executive Officer Greifeld, 53, would be able to reduce expenses by eliminating competition in stock listings and reducing it in equities and options trading after cutting costs to 59 percent of revenue from 68 percent over the last five years.

“A vast majority of developed countries have a strong national exchange, a cornerstone of their economies,” Greifeld said in an e-mailed statement. “To remain competitive and reduce market fragmentation, we will create a strong global exchange to increase market transparency and liquidity and attract worldwide issuers.”

Deal Funding

Nasdaq OMX and ICE said they plan to raise $3.8 billion from loans to help fund the bid. Lenders led by Bank of America Corp. and Wells Fargo “are prepared to arrange fully committed financing” for the takeover, the companies said in today’s statement.

NYSE Euronext (NYX) stockholders would receive $14.24 in cash plus have each of their shares swapped for 0.4069 share of Nasdaq OMX, equal to $10.51 based on the stock’s closing price yesterday, and 0.1436 share of ICE, valued at $17.74.

“The $42.50 sounds great on paper,” said Sachin Shah, a special situations and merger arbitrage strategist at Capstone Global in New York. “But on a practicality level, as Nasdaq and ICE shares trade today and the next few days, as we’ve seen over the past month or two now of how Deutsche Boerse shares have traded, that will determine if the implied value is $42.50 or much lower.”

February Deal

The offer comes after Deutsche Boerse struck a $9.53 billion deal for NYSE Euronext in February. More than $20 billion of exchange acquisitions have been announced in the past five months as venues in North America, Europe and Asia try to cut costs and offset declining profits from equity trading with options, futures and derivatives.

Singapore Exchange Ltd. (SGX)’s $8.3 billion bid for Sydney-based ASX Ltd. on Oct. 25 set off the spree of offers. London Stock Exchange Group Plc agreed to buy Canada’s TMX Group Inc. for about $3.1 billion on Feb. 9, and Deutsche Boerse followed less than a week later with its takeover of NYSE Euronext. In the same month, Bats Global Markets agreed to buy Chi-X Europe Ltd., Europe’s largest alternative trading system.

NYSE Euronext was formed when the operator of the New York Stock Exchange bought Europe’s second-largest exchange in 2007. It now owns exchanges in Amsterdam, Lisbon, Paris and Brussels, as well as London-based Liffe, Europe’s second-largest derivatives market. The company also runs three U.S. stock exchanges: NYSE Arca, NYSE Amex and the New York Stock Exchange, two options platforms and the NYSE Liffe U.S. futures exchange.

Entering Europe

ICE would enter Europe through an acquisition of NYSE Euronext’s derivatives exchanges. ICE specializes in energy and commodities trading, with its only offering in financial products coming from currencies and equity indexes at its New York-based ICE Futures U.S. exchange.

The deal would give ICE trading in Euribor three-month future. NYSE Liffe U.K.’s Euribor future was the fourth-largest interest-rate future in the world last year, according to the Futures Industry Association, a trade and lobbying group. Eurodollars traded at Chicago-based CME Group Inc., the world’s largest futures market, were the most-actively bought and sold interest-rate future in 2010, according to FIA.

“The value’s all driven by derivatives,” said Robert Webb, a finance professor at the University of Virginia and former trader at the Chicago Mercantile Exchange. “Their strategy is to remain a major player in this business at a time you’re seeing consolidation around the world.”

ICE gaining interest-rate and bond futures is “also a very important consideration” to its bid, Webb said.

To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

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