Nasdaq OMX Poised to Win Cheaper LSE Out of Failure to Grab NYSE:
Real M&A
By Whitney Kisling and Nandini Sukumar - May 16, 2011 Nasdaq OMX Group Inc. (NDAQ)’s failure to acquire NYSE Euronext is giving Robert Greifeld an opportunity to succeed at buying the exchange he’s always wanted -- at a discount of almost 30 percent.
Greifeld, Nasdaq OMX’s 53-year-old chief executive officer, and IntercontinentalExchange Inc. (ICE) yesterday dropped their $11.3 billion bid for the operator of the New York Stock Exchange after U.S. regulators threatened to block the deal. The decision spurred a 6.8 percent jump in London Stock Exchange Group Plc (LSE), which Nasdaq OMX has tried to acquire three times, and came one day after LSE’s own offer for Canada’s largest bourse was trumped by a group of local banks and funds.
While NYSE Euronext’s Duncan Niederauer can cement his own deal to sell the 219-year-old company to Deutsche Boerse AG (DB1) and emerge as head of the world’s largest exchange, Greifeld risks being left out of the industry’s biggest round of consolidation. Buying LSE now would be cheaper after the London-based exchange lost $1.4 billion in value since Nasdaq OMX’s hostile bid failed in February 2007. LSE closed at 884 pence a share yesterday, 29 percent less than the New York-based exchange’s prior offer of 1,243 pence a share, according to data compiled by Bloomberg.
“Greifeld has to do something clearly,” said Niki Beattie, CEO of Market Structure Partners Ltd., a London-based consulting firm that advises brokers and exchanges. “It makes sense. He’s had a look at LSE before and it would cost him less possibly to do it now. Everything was looking pretty bad for him and now actually it looks a bit easier. I’m convinced he will explore a deal with LSE.”
Exchange Acquisitions
Frank De Maria, a spokesman at Nasdaq OMX, and LSE’s Victoria Brough didn’t return e-mails seeking comment.
Greifeld was counting on a plan to merge Nasdaq OMX’s stock-trading and listings operations with New York-based NYSE Euronext (NYX) to eliminate costs in businesses where competition has cut its profit and market share. Nasdaq OMX would have gained a monopoly on corporate listings.
The April 1 bid from Nasdaq OMX and ICE of Atlanta for New York-based NYSE Euronext was part of more than $30 billion in takeover offers for exchanges in less than six months.
The deals began in October, when Singapore Exchange Ltd. (SGX) bid A$8.35 billion ($8.3 billion) for ASX Ltd. (ASX) of Sydney. LSE, run by Xavier Rolet, 51, agreed to buy TMX for about $3.1 billion on Feb. 9, and Frankfurt-based Deutsche Boerse followed less than a week later with its takeover of NYSE Euronext. Singapore Exchange’s acquisition of ASX was rejected by Australia’s government last month.
‘Credible Proposals’
U.S. regulators needed 45 days to block Nasdaq OMX and ICE from acquiring NYSE Euronext. The U.S. Justice Department cited concern about the potential for monopolies in stock listings, data services and some areas of trading in rejecting the offer, saying in a statement yesterday it would have sued to block it.
For Greifeld, the rejection is a setback after he told shareholders his attempt to snatch away NYSE Euronext would create a trading and listings powerhouse based in the U.S. Greifeld and ICE CEO Jeffrey Sprecher said on April 10 that they were confident they would win antitrust clearance because of a “realistic and actionable” plan to overcome objections.
“They need to be in the position where they can make credible proposals if they go to acquire,” said Keith Wirtz, who helps oversee $18 billion, including more than 60,000 Nasdaq OMX shares, as chief investment officer for Fifth Third Asset Management in Cincinnati. Having the NYSE Euronext deal scuttled “doesn’t relieve Nasdaq of strategic considerations that they must be having right now. They have got to look at ways to position the franchise globally and for growth.”
Maple Bid
A day before Nasdaq OMX’s decision, Maple Group Acquisition Corp., made up of four Canadian banks and five pension funds, announced an unsolicited C$3.6 billion ($3.7 billion) bid for TMX Group Inc. (X) to keep the country’s main stock exchange under Canadian ownership and block LSE’s takeover.
A deal for LSE would be cheaper than trying to buy NYSE Euronext and less expensive than Greifeld’s prior attempts to purchase the exchange that traces its roots back to the coffee houses of 17th century London.
In February 2007, LSE shareholders rejected Greifeld’s 1,243 pence hostile bid when the LSE was valued at $5.33 billion. It was one of five takeover offers that LSE’s former CEO Clara Furse fended off in two years. After closing at 884 pence yesterday, LSE is now worth about $3.9 billion.
Nasdaq OMX currently has a market value of $4.6 billion.
Courting LSE
Greifeld first set his sights on LSE about five years ago to create what would have been the first trans-Atlantic stock exchange. In March 2006, he offered 2.4 billion pounds ($4.1 billion) for the London-based bourse in what the company called an “attractive offer.” LSE rejected that bid, which led to Greifeld’s failed takeover attempt in 2007.
In July 2002, before Greifeld joined Nasdaq OMX, talks between the two broke down after U.S. and U.K. regulators failed to agree on how to oversee the combined market.
Nasdaq OMX owns 12 equity and options markets in the U.S. and Europe including the Nasdaq Stock Market, Nasdaq Options Market and venues in Sweden, Denmark, Finland, Iceland, Estonia, Latvia and Lithuania.
Combining with LSE would create a company with $8.5 billion in market value, leapfrogging Singapore Exchange and Australia’s ASX among the world’s biggest exchanges.
Merger Rationale
Nasdaq OMX, the second-largest U.S. operator of stock trading with a 19 percent share, can also reduce expenses from buying LSE, Europe’s biggest exchange by the value of its listed companies. LSE had 56 percent of the FTSE 100 market for the week ended May 13, data compiled by Fidessa Group Plc showed.
Cutting costs has been a focus of Greifeld’s acquisitions since he joined Nasdaq in 2003, and one of the benefits he touted as part of his joint bid for NYSE Euronext. Greifeld reduced expenses to 59 percent of revenue from 68 percent in the last five years, even as he acquired OMX AB in 2008, according to data compiled by Bloomberg.
“If Nasdaq wants to continue down the path of this premier world equities exchange and partner with people that are good listings venues, LSE is perceived as a logical listings place and would make some sense,” said Jamie Selway, managing director at New York-based Investment Technology Group Inc.
A deal for LSE would also give Nasdaq OMX a bigger presence in derivatives. Nasdaq OMX, which competes with Chicago-based CBOE Holdings Inc. and NYSE Euronext in the U.S. options market, opened a U.K. electricity trading market this year. LSE operates two derivatives markets, the EDX London and IDEM.
Falling Behind
Without any deals, Nasdaq OMX and LSE would fall further behind as their biggest competitors get larger.
NYSE and Deutsche Boerse would have a combined market capitalization of $25 billion, five times Nasdaq OMX’s equity value and more than six times larger than LSE, according to data compiled by Bloomberg.
Hong Kong Exchanges & Clearing Ltd., currently the world’s biggest bourse, and Sao Paulo-based BM&FBovespa SA (BVMF3), the operator of Latin America’s biggest securities exchange, are both at least three times as big as Nasdaq OMX, the data show.
LSE said on May 14 that it remained committed to its merger agreement with TMX, even after the Toronto-based company said it received a higher offer from Maple Group.
Nasdaq OMX may also look to combine with Singapore Exchange. The $6.5 billion equity and derivatives market is run by the bourse’s former President Magnus Bocker, 49, and uses Nasdaq OMX’s technology to match orders, according to Larry Tabb, founder of Westborough, Massachusetts-based research firm Tabb Group LLC.
‘A Good Idea’
Bocker didn’t immediately respond to an e-mail seeking comment outside normal business hours.
“In certain ways Singapore’s a good idea,” Tabb said. “Bocker and Greifeld have a working relationship.”
For Bruce Weber, a professor of finance at the London Business School, taking at shot at the LSE may be worth the risk for Nasdaq OMX at the current price.
“There’s still a green light for Greifeld to move forward on sensible acquisitions,” he said. “LSE’s cheaper now than it was the last time. He might look like a savvy buyer.”
Overall, there have been 9,222 deals announced globally this year, totaling $908.9 billion, a 23 percent increase from the $741.4 billion in the same period in 2010, according to data compiled by Bloomberg.
To contact the reporters on this story: Whitney Kisling in New York at wkisling@bloomberg.net; Nandini Sukumar in London at nsukumar@bloomberg.net
To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net; Nick Baker at nbaker7@bloomberg.net.
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