Nasdaq OMX Group Inc. (NDAQ) and IntercontinentalExchange Inc. (ICE) withdrew their bid for NYSE Euronext after the U.S. Department of Justice threatened a lawsuit, sending NYSE Euronext down by the most in 2 1/2 years as the takeover battle for the Big Board ended.
NYSE Euronext agreed to be bought by Frankfurt-based Deutsche Boerse AG (DB1) on Feb. 15, creating the world’s largest exchange operator. The NYSE Euronext board twice rejected a rival proposal from Nasdaq OMX and ICE, saying the unsolicited offer would lead to too much debt and regulatory opposition.
Nasdaq OMX Chief Executive Officer Robert Greifeld finds himself 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. Nasdaq OMX would have gained a monopoly on corporate listings.
“The surprise is not that listings concentration was a problem, but rather that Nasdaq got definitive indication so quickly from the DOJ,” said Jamie Selway, managing director at New York-based Investment Technology Group Inc. “With DB-NYSE, the real antitrust question is for the Europeans, for Brussels. By combining Liffe and Eurex, it creates one single platform for fixed-income derivatives in Europe.”
NYSE Euronext shares sank 13 percent, the most since December 2008, to $35.73 in New York. Nasdaq OMX slipped 2.5 percent to $26.23. ICE advanced 3.3 percent to $122.22. London Stock Exchange Group Plc (LSE), whose merger agreement with Canada’s TMX Group Inc. (X) suffered a setback over the weekend, gained 6.8 percent to 884 pence on speculation it may be a takeover target.
The Nasdaq OMX-ICE proposal would have broken up NYSE Euronext, with Nasdaq OMX taking the stock and options trading and the listings businesses. ICE would have kept the Liffe futures markets, which competes with Deutsche Boerse’s Eurex in Europe. 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, with a single operator would be blocked by regulators.
Nasdaq OMX and ICE’s withdrawal paves the way for NYSE shareholders to approve the merger with Deutsche Boerse at a special meeting scheduled for July. NYSE CEO Duncan Niederauer is 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.
Greifeld said today the U.S. government’s rejection came after he and ICE CEO Jeffrey Sprecher proposed remedies.
“It became clear that we would not be successful in securing regulatory approval for our proposal despite offering a variety of substantial remedies,” Greifeld 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.”
“The acquisition would have substantially eliminated competition for corporate stock listing services, opening and closing stock auction services, off-exchange stock trade reporting services and real-time proprietary equity data products,” the government agency said.
Nasdaq OMX and ICE dropped their bid for NYSE Euronext a day after a group of Canada’s biggest banks and pension funds announced an unsolicited C$3.6 billion ($3.7 billion) bid for TMX Group. Their aim is to keep the country’s main stock exchange in Canadian hands while sacrificing global growth from a planned merger with the 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.
“The DOJ’s decision leaves Nasdaq in a weaker long-term position versus the other major exchanges globally,” Daniel Fannon, an analyst at Jefferies Group Inc. in San Francisco, wrote in a note to investors. “Without a major international footprint, Nasdaq will continue to have difficulty competing outside the US. The most likely scenario is Nasdaq will continue to look for a partner to expand with and achieve a more competitive scale.”
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 he wanted NYSE to come first in the combined corporation’s name. He wrote a letter to Nasdaq OMX and ICE on April 25 asking for an estimate of job losses in their plan.
“The merger between NYSE and Deutsche Boerse has the potential to protect New York jobs and strengthen New York’s position in the derivatives markets,” Schumer said in a statement today. “We will be watching events carefully to make sure New York and the United States are not disadvantaged in any way.”
To contact the reporter on this story: Nandini Sukumar in London at firstname.lastname@example.org