Street Stunned by How Fast U.S. Blocked Nasdaq
Regulators needed 45 days to block Nasdaq OMX Group Inc. (NDAQ) and IntercontinentalExchange Inc. (ICE) from acquiring NYSE Euronext, shocking analysts with the speed of their decision and leaving Robert Greifeld without a partner.
The U.S. Justice Department cited concerns about the potential for monopolies in stock listings, data services and some areas of trading in rejecting the unsolicited offer, saying in a statement it would have sued to block it. That leaves NYSE Euronext Chief Executive Officer Duncan Niederauer free to combine with Frankfurt-based Deutsche Boerse AG (DB1), a proposal that has almost no overlap in American equities.
For Nasdaq OMX CEO Greifeld, rejection is a setback after he told shareholders his attempt to snatch away NYSE would create a trading and listings powerhouse based in the U.S. Greifeld and ICE CEO Jeffrey Sprecher said on April 10 that they were confident they would win antitrust clearance because of a “realistic and actionable” plan to overcome objections.
“The timeline of events calls into question Greifeld’s leadership style, which was to jump first and ask questions later,” said Tim Hoyle, director of research at Radnor, Pennsylvania-based Haverford Trust, which manages $6 billion and owns shares of NYSE Euronext. (NYX) “It is very much a win for Niederauer. He stuck to his guns and comes out ahead.”
Niederauer pursued his union with Deutsche Boerse while refusing to meet with Nasdaq OMX-ICE since they announced their offer on April 1. While the trans-Atlantic combination faces its biggest regulatory test in Europe, where it will dominate derivatives trading, analysts saw less chance competition authorities will rule against it.
They cite the merger of the Chicago Mercantile Exchange and the Chicago Board of Trade, announced in 2006. The $11.3 billion deal created the largest U.S. exchange for futures contracts on stocks, bonds, currencies and commodities.
“With DB-NYSE, the real antitrust question is for the Europeans,” said Jamie Selway, managing director at New York- based Investment Technology Group Inc. “By combining Liffe and Eurex, it creates one single platform for fixed-income derivatives in Europe. And what people say around that is that CME and the Board of Trade did the same thing in the States and that passed antitrust muster.”
The Nasdaq OMX-ICE proposal would have broken up NYSE Euronext. Greifeld said he failed to win regulatory approval “despite offering a variety of substantial remedies,” according to a statement today. One solution Greifeld proposed was selling the “NYSE SRO and related businesses,” meaning the New York Stock Exchange and NYSE Euronext’s corporate listings business.
That would have left NYSE Arca, NYSE Amex and NYSE’s European operations and technology-services division. ICE planned to keep the Liffe futures markets, according to the April 1 bid from Nasdaq OMX and ICE for NYSE Euronext.
“It would be highly unlikely that it could be remedied,” said Christine Varney, assistant attorney general in charge of the Justice Department’s antitrust division, on a conference call. “One wonders what it is they’re going to divest and how it will compete and what is the business rationale for the transaction.”
Antitrust regulators said the risks to U.S. capital markets were too great to let the Nasdaq OMX-ICE transaction go through. In announcing it would have sued to block the rival bid, the Justice Department cited concern that joining NYSE Euronext with Nasdaq OMX would eliminate competition in corporate listings.
“It was surprising how quick the Justice Department came to their conclusion,” said Michael Wong, a Chicago-based analyst at Morningstar Inc. “We thought this could drag out for a while and were somewhat concerned for NYSE shareholders having to vote not knowing how antitrust was going to go in the U.S. or Europe. Now they can concentrate on European antitrust issues, which should still not be disregarded.”
While NYSE Euronext and Nasdaq OMX have seen the share of trading in stocks they list drop from more than 80 percent a decade ago to about 30 percent now, they still dominate the business of listing, in which companies sell shares to the public and venues provide services such as market intelligence.
“The department’s investigation revealed that NYSE and Nasdaq are the only competitors in several businesses vital to the success of U.S. equity markets,” the department said in a statement on its website. “The acquisition would have removed incentives for competitive pricing, high quality of service, and innovation in the listing, trading and data services these exchange operators provide.”
The Justice Department cited less competition in listings, auctions at the start and end of the trading session, and real- time data feeds.
Senator Charles E. Schumer, a Democrat from New York, said today in a statement that the combination of NYSE and Deutsche Boerse has more potential to keep jobs in New York and strengthen New York’s position in the derivatives markets. 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.
Christine Varney, head of the Justice Department’s Antitrust Division, said in an April 14 interview in Washington that her unit is reviewing the NYSE Euronext-Deutsche Boerse deal. Regulators focused on competition in Europe are also looking at that deal since it creates a monopoly in fixed-income derivatives trading by combining NYSE Euronext’s Liffe business and Deutsche Boerse’s Eurex futures operation.
“The challenge with exchanges is that they are thought of as national treasures and they’re thought of as very intertwined with the local economy and with the local government,” said Larry Tabb, founder of New York-based research firm Tabb Group LLC. “It’s very problematic to try and all of a sudden say, ‘Our national exchange, our national treasure, is going to be owned by an outside third party.’”
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