Nasdaq Drops NYSE Bid on Regulatory Obstacles

Monday, 16 May 2011 07:33 AM

 

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Nasdaq OMX Group Inc. (NDAQ) and IntercontinentalExchange Inc. (ICE) pulled their bid for NYSE Euronext after talks with U.S. regulators showed they wouldn’t secure antitrust approval, clearing the path for Deutsche Boerse AG.

NYSE Euronext agreed to be bought by the Frankfurt-based bourse on Feb. 15, a merger that would create the world’s largest exchange operator. The NYSE board twice rejected a rival proposal from Nasdaq and ICE, saying the unsolicited offer would lead to too much debt and regulatory opposition.

“It became clear that we would not be successful in securing regulatory approval for our proposal despite offering a variety of substantial remedies,” Bob Greifeld, chief executive officer of Nasdaq, said in a statement today. “We saw a unique opportunity to create more value for stockholders and strengthen the U.S. as a center for capital formation amid an ongoing shift of these vital activities and jobs outside of our country.”

Nasdaq again finds itself without a partner in the global wave of mergers that has swept the exchange industry. The second-biggest U.S. exchange operator was counting on its plan to merge its stock-trading and listings operations with NYSE Euronext (NYX) as a way to eliminate costs in businesses where competition has reduced its profits and market share.

NYSE Falls

NYSE sank 11 percent to $36.59 at 7:57 a.m. in pre-market New York trading. Nasdaq slipped 2.1 percent to $26.34.

Nasdaq and ICE’s withdrawal paves the way for NYSE shareholders to approve the merger with Deutsche Boerse at a special meeting scheduled for August. NYSE CEO Duncan Niederauer may be free to create an exchange company with operations in 11 countries generating 5.6 billion euros ($7.9 billion) in sales and 869 million euros in earnings annually. Earnings before interest and taxes would have been 1.1 billion euros for the year ending Dec. 31.

The Nasdaq-ICE proposal would have broken up NYSE Euronext, with Nasdaq taking the stock and options trading and the listings businesses. ICE would have kept the Liffe futures markets. NYSE Euronext based its opposition to the proposal on grounds that concentrating the business of stock listings, in which companies raise money by selling shares on an exchange, in the hands of a single operator would be blocked by regulators.

Greifeld today said the U.S. government’s expedited review showed opposition came even after he and ICE Chief Jeffrey Sprecher proposed remedies including a sale of the NYSE’s self- regulatory arm.

TMX Offer

Nasdaq and ICE dropped their bid for NYSE days after a group of Canada’s biggest banks and pension funds made an unsolicited C$3.6 billion ($3.7 billion) bid for TMX Group Inc. (X) to keep the country’s main stock exchange in Canadian hands while sacrificing global growth from a planned merger with the London Stock Exchange Group Plc. (LSE)

The counteroffer may end TMX’s efforts to join in the biggest round of global consolidation of exchanges, and leave LSE without a partner as it seeks to expand internationally and compete with larger rivals. LSE’s bid for TMX was part of more than $30 billion in takeover offers for exchanges in less than six months.

Shares in LSE surged as much as 8.6 percent after Nasdaq’s announcement and traded 6.9 percent higher at 884.5 pence at 1:05 p.m. in London.

NYSE Euronext’s agreement with Deutsche Boerse has been subject to virtually no political opposition in the U.S. even as it would leave Deutsche Boerse’s shareholders with majority control. Senator Charles Schumer, a Democrat from New York who has involved himself in securities industry regulation, said in February that his main concern was preserving the NYSE in the combined company’s name. He wrote a letter to Nasdaq OMX and ICE on April 25 asking for an estimate of job losses in their plan.

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