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Friday, April 1, 2011

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

Nasdaq OMX Group Inc. (NDAQ) and IntercontinentalExchange Inc. (ICE) made a hostile 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.  As part of the deal, ICE would purchase NYSE Euronext's Liffe futures markets, while Nasdaq OMX would take over its U.S. options markets. The offer represents a 19% premium over a February bid for NYSE Euronext by the German exchange.

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 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.

“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.”

Sweden, Denmark, Finland

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. It produced net income of $395 million in 2010, which is 26 percent of the company’s $1.5 billion in net revenue for the year.

NYSE Euronext’s divisions include the New York Stock Exchange, the Euronext platform that handles shares in the Netherlands, Belgium, Portugal and France, and the European derivatives platform known as NYSE Liffe. Income amounted to 22 percent of its $2.5 billion in net revenue.

The Deutsche Boerse deal, valued at $9.26 billion as of yesterday, creates the world’s largest exchange operator. It carries a 250 million ($356 million) breakup fee, increasing the cost of Nasdaq OMX and ICE’s bid by about $1.35 a share, said Sachin Shah, a special situations and merger arbitrage strategist at Capstone Global in New York.

Half of Trading

Combined, NYSE Euronext and Nasdaq OMX would have about 48 percent of U.S. equity trading. They have struggled to keep market share since Kansas City, Missouri-based Bats Global Markets and Jersey City, New Jersey-based Direct Edge Holdings LLC started their own venues about five years ago. NYSE Euronext currently handles 28 percent of equity volume and Nasdaq OMX has 20 percent, according to data from London-based Barclays Plc for the fourth quarter.

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