Stephen Foley: Memo to NYSE: steer clear of Nasdaq
Saturday 30 April 2011
US Outlook: Nasdaq doesn't really care whether it ends up owning the New York Stock Exchange.
It just wants to stop Deutsche Börse from combining with NYSE Euronext to form the world's largest exchange group. If the Deutsche Börse deal goes ahead, it risks permanently confining Nasdaq to a second division while the global titans consolidate into full-service technology groups combining equity and derivatives trading across multiple countries.
Nasdaq has really had to stretch to put together its counter-offer for NYSE. It has teamed up with IntercontinentalExchange (ICE), which is contributing its shares as currency and will take over NYSE's European derivatives business if the deal goes through. It has teamed up, too, with a consortium of bank lenders, whose interest demands will gobble up a lot of the cost savings that Nasdaq claims make its offer superior.
The combination with Deutsche Börse, on the other hand, could create a powerhouse in European derivatives trading just as regulators are pushing for more such trading to be done on exchanges rather than over the counter between banks.
That Nasdaq's bid, when it was made, was 20 per cent higher than Deutsche Börse's all-share offer hardly made up for the strategic poverty of its proposal.
And that is even before factoring in the competition risks. In the US, where companies will lose a choice of listing venues if NYSE andNasdaq are combined, anti-trust issues could well be insurmountable; in Europe, for Deutsche Börse and NYSE, they merely look really daunting.
Meanwhile, the decline in the dollar and more strong financial results from Deutsche Börse have helped to narrow the premium of Nasdaq's bid to about 10 per cent.
NYSE shareholders don't want their company to talk to Nasdaq in order to get more details about the counter-bid, or to try to improve it. They want NYSE to talk to Nasdaq to put pressure on Deutsche Börse to sweeten its offer. But thesetactics can misfire. The NYSE board is right to continue to shut out Nasdaq.
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