Nasdaq OMX Group Inc. and IntercontinentalExchange Inc. may take their unsolicited takeover offer for NYSE Euronext directly to shareholders, bypassing board members who twice rejected their bid, according to a person familiar with the matter.
At NYSE Euronext’s annual meeting in New York yesterday, Chairman Jan-Michiel Hessels defended the company’s deal to be purchased by Frankfurt-based Deutsche Boerse, saying the bid from Nasdaq OMX of New York and Atlanta-based ICE is an “empty vessel.” The rival offer, valued 8.5 percent higher than Deutsche Boerse’s agreement as of 1:20 p.m. New York time, has been voted down by NYSE Euronext board members including Hessels twice this month.
While announcing a tender offer for NYSE Euronext shares would demonstrate Nasdaq OMX and ICE’s urgency, it carries little weight, said Sang Lee, a managing partner at Aite Group LLC, a Boston-based financial-research firm. That’s because the Big Board’s governing documents, mandated by the Securities and Exchange Commission, prevent investors from accumulating a 20 percent stake in the company without the approval of the board.
“With a built-in restriction, a move like that would be symbolic,” Lee said. “It may be intended to increase shareholder pressure on NYSE management and the board to take their offer more seriously and at a minimum have a discussion.”
Frank De Maria, a spokesman for Nasdaq OMX, as well as ICE’s Kelly Loeffler, NYSE Euronext’s Richard Adamonis and Naomi Kim of Deutsche Boerse declined to comment.
NYSE Euronext shareholders will vote on the Deutsche Boerse deal on July 7. Owners controlling at least half of NYSE Euronext must back the transaction for it to be approved, compared with 75 percent at Deutsche Boerse.
Nasdaq OMX and ICE may be helped by a tender because of the chance it will lure traders who are less likely to be swayed by NYSE Euronext’s claim that the Deutsche Boerse agreement holds more long-term value, said Jamie Selway, managing director at New York-based Investment Technology Group Inc.
“They could establish a foothold and try to get more arbitragers involved in the stock rather than traditional holders,” said Selway, a former chief economist for Archipelago Holdings LLC, which NYSE Euronext bought in 2006. “If risk arbs begin to enter the stock or other folks sympathetic to the transaction, they could attempt to block the Deutsche Boerse deal,” he said.
All board members of NYSE Euronext won re-election yesterday, getting about 80 percent support, according to a preliminary vote count. That level is “rather low,” said Ted Allen, head of publications and governance counsel at ISS Proxy Advisory Services.
Standard & Poor’s 500 Index companies have approved directors with an average 96 percent support level in 2011, according to ISS, the shareholder advisory unit of New York- based MSCI Inc. Last year, NYSE Euronext owners re-elected all but one director with 96 percent approval. The other director received 91 percent of the votes, Allen said.
“It’s hard to know exactly what motivated them to withhold support from NYX’s directors, but it appears that some shareholders were not happy by the board’s rejection of the Nasdaq/ICE offer,” Allen wrote in an e-mail yesterday.
NYSE Euronext’s five biggest owners as of Dec. 31 — T. Rowe Price Group Inc., BlackRock Inc., State Street Corp., Vanguard Group Inc. and Legg Mason Inc. — controlled 22 percent of the company’s stock, ISS data show.
Bill Miller, the chief investment officer of Legg Mason Capital Management Inc. in Baltimore, said April 27 that NYSE Euronext’s refusal to meet with Nasdaq OMX and NYSE Euronext is inconsistent with the company’s obligations.
“It is in the shareholders’ interest that the board work to maximize value for owners,” Miller, whose mutual-fund company is the fifth-biggest NYSE Euronext holder with 7.48 million shares, said in an e-mailed statement to Bloomberg News yesterday. “We don’t see how being unwilling to meet with Nasdaq furthers that goal.”
Heather McDonold, a spokeswoman for T. Rowe Price in Baltimore, Alicia Curran of Boston-based State Street, and Jim Marren of New York-based BlackRock declined to comment on NYSE Euronext when contacted this week. John Woerth of Vanguard in Valley Forge, Pennsylvania, didn’t respond to an e-mail.
Companies such as stock exchanges have stricter rules on ownership because they’re viewed as critical to the economy, Selway said.
“It’s all about checks and balances around the control of regulatory assets via the concentration limits,” Selway said. “Exchanges can still do mergers — Deutsche Boerse can buy the whole thing. But if you go above a threshold there are constraints.”
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