NEW YORK (Reuters) - The New York Stock Exchange began life as a publicly traded company on Wednesday with a bang, as its stock surged nearly 25 percent in its market debut.
The day marked the end of the exchange's 213-year history as a member-owned club and the start of its own membership in the red-hot publicly-traded exchange sector, with its sights set firmly on future growth through acquisitions and new products.
The NYSE, the world's largest stock exchange, sealed its purchase of electronic rival Archipelago Holdings Inc. on Tuesday and joined the two into the new NYSE Group Inc. (NYSE:NYX - news), designed to haul the exchange into the electronic age.
Interest in NYSE shares ran high from the start, mirroring other strong openings for exchanges going public.
The stock rose 23 percent from Archipelago's $64.25 close on the American Stock Exchange on Tuesday to $80, valuing the NYSE Group at more than $12 billion. The stock was up 23 percent from Archipelago's Tuesday close on the Pacific Exchange.
"The floor reaction was great. You could hardly hear the bell," NYSE Chief Executive John Thain told reporters after ringing the bell to mark the start of trading.
But the ringing of promotional NYSE handbells was not quite enough to drown out a few cries of "boo" from sections of the trading floor. Some uncertainty overhangs the long-term future of an auction system run by traders as cheaper electronic trading increasingly takes over.
The share price jump came as a surprise to some analysts, who had not expected a significant "pop." They figured the deal was factored into Archipelago's share price, which had surged from about $17 when the deal was unveiled last April.
Jamie Selway, managing director at White Cap Trading, attributed the share hike to a lack of liquidity in the stock and high retail interest.
"It's the granddaddy of all exchanges and you can infer there's going to be a lot of retail interest," said Selway, adding investing in the stock was "not for the faint of heart" as it was hard to establish an appropriate value right now.
HIGHLY PRICED?
The exchanges sector has been popular among investors of late, as operators follow a trend of demutualizing and going public, with several initial public offerings reaping huge gains for investors in their debuts.
Shares of CBOT Holdings Inc. (NYSE:BOT - news), operator of the No. 2 U.S. commodities exchange, surged nearly 50 percent in their market debut last October; Chicago Mercantile Exchange Holdings Inc. (NYSE:CME - news), the largest U.S. futures exchange, rose nearly 23 percent from their offer price in 2002.
However, the NYSE is already trading at one of the richest valuations among its peers, causing concern among some analysts that the shares may be overvalued.
Sandler O'Neill analyst Richard Repetto estimates the NYSE is trading at around 60 times 2006 earnings.
The London Stock Exchange (LSE.L) trades at 38 times its expected normalized 2006 earnings, according to Reuters Estimates. Only U.S. rival the Nasdaq Stock Market (Nasdaq:NDAQ - news), which trades at 61 times forward earnings, trades at the same level.
Repetto also attributed the first day surge to retail investors, saying they were viewing the NYSE listing change in the same way as some of the recent exchange IPOs -- but he has a "sell" rating on the stock and a 12-month target of $48.
Analysts are awaiting more information from the NYSE on where it is headed in order to evaluate its growth prospects.
The Big Board is expected to push harder into trading assets other than equities, broadening its range of options, over-the-counter stocks and other derivatives. Thain has also made clear his desire to participate in the continuing consolidation of exchanges in Europe and the United States.
The NYSE is now answerable to shareholders rather than 1,366 seat holders who each received 80,177 shares and $300,000 cash as the exchange went public.
Seats which sold at a record price of $3.75 million last December 27 under that formula would have a value in cash and stock of more than $6.7 million at the close of trading on Wednesday.
Going forward, Thain is expected to cut costs and possibly raise fees to boost profit and possibly move the exchange's opening forward from 9:30 a.m. New York time to win some of the trades happening earlier.
"They are going to turn a lot of attention to a growth strategy ... striving to meet the investor growth expectations that underlie the stock price," said Bill Cline, manager director of global markets at Accenture. http://news.yahoo.com/s/nm/20060309/bs_nm/financial_nyse_dc
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