NYSE Euronext's shareholders seem skeptical that Nasdaq OMX Group and IntercontinentalExchange Inc. could really buy the exchange operator, interviews this week revealed.
Three of the five shareholders that spoke to Reuters said face-to-face meetings with exchange executives could sway them as they weigh the Big Board's friendly merger agreement with Germany's Deutsche Boerse against an unsolicited, higher bid from Nasdaq and ICE.
NYSE said on Sunday that it was sticking with Deutsche Boerse's deal, because the ICE/Nasdaq bid was too risky. Nasdaq and ICE executives have spoken to NYSE shareholders about their offer, which they believe is superior.
Though both deals face considerable antitrust hurdles, most hedge funds and other institutions zeroed in on what could kill Nasdaq's planned tie-up with the NYSE, stressing Nasdaq CEO Robert Greifeld needs to make a strong case he can overcome a tough regulatory review.
"The second bid (from ICE and Nasdaq) is interesting because it's higher, but it's uncertain what's going to occur there," said Daniel Coleman, co-manager of the Edge Equity Income Fund and head of equities at Seattle-based Edge Asset Management, which holds more than $45 million in NYSE Euronext shares.
Capping a wave of merger plans among the world's exchanges, Deutsche Boerse agreed in February to acquire the New York Stock Exchange parent for $10.2 billion in stock to create the world's largest market operator.
Nasdaq and ICE made their $11.3 billion cash-and-stock bid this month, proposing to carve NYSE Euronext in two, and appealing to U.S. patriotism to make their case. The offer is a 12 percent premium to that of Deutsche Boerse.
Nine days later, NYSE's board unanimously dismissed that bid as too risky, arguing regulators would block a merger of the top two U.S. exchanges, and highlighting the risky debt levels Nasdaq would take on.
"You're getting cash, and you're also getting two pieces of paper (stocks) with lots of debt — it may not be paper that you really want," said Coleman. "That may not be a superior investment over the next three to five years."
Greifeld and his counterparts at NYSE Euronext and Deutsche Boerse, Duncan Niederauer and Reto Francioni, have all hit the road to meet NYSE shareholders, who are expected to vote on the German tie-up in July. A source familiar with NYSE's thinking called it a "reset week" that's meant to reassure investors.
"Nasdaq's ability to demonstrate they can get the deal done is going to be important for shareholders to vote down the Deutsche Boerse deal," said a hedge fund manager who requested anonymity because of the sensitivity of meetings with the exchange executives.
"Deutsche Boerse is under pressure too — people aren't necessarily going to be crazily supportive of that deal when there's a better deal on the table, knowing that there's regulatory risk for both," he said.
"There's still a lot left to be played in this soap opera."
Most shareholders who spoke to Reuters said a bidding war was unlikely in the short term, jibing with ICE CEO Jeffrey Sprecher's assertion on Tuesday that there's no reason to boost his bid because it is already superior.
Nor does Deutsche Boerse have plans to raise its offer, people familiar with the exchange's thinking said on Monday.
Yet some expect the battle for NYSE Euronext — which runs stock and futures bourses in the United States and across Europe — to grow increasingly personal as egos clash and as takeover strategies change on the fly.
"It could get extremely nasty," said Thomas Caldwell, chairman and founder of Toronto-based Caldwell Investment Management, who with his firm holds more than $100 million in NYSE shares.
Greifeld, a sharp cost-cutter and technology expert, and Sprecher, a shrewd entrepreneur with close ties to Wall Street, respectively built Nasdaq and ICE on a series of acquisitions.
Niederauer, the former co-head of equities at Goldman Sachs Group Inc., who is slated run the combined Deutsche Boerse-NYSE Euronext, would be widely expected to leave if cross-town rival Greifeld succeeds in buying his company.
"Both Sprecher and Greifeld have failed in some takeovers, and all I can tell you is that I've learned more from my failures than from my successes," Caldwell said. "They're very tough and they're not going to let it go, and Greifeld is a very determined person in this matter."
Institutional investors with an eye on short term gains could favor the offer from Nasdaq and ICE, while those with an eye on the horizon could favor Deutsche Boerse, some shareholders added.
"As a shareholder I am looking for the best possible outcome and all potentially viable offers should be thoroughly evaluated," said another shareholder who asked not to be named.
"The NYSE is a very good and unique asset for a number of global exchange players. I think a sale of NYSE has the potential to be extremely competitive."
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