NYSE Euronext May Pay Special Dividend to Win Merger Support, Repetto Says

NYSE Euronext, the U.S. exchange operator planning to merge with Deutsche Boerse AG (DB1), may offer a one-time dividend as a sweetener to help win shareholder approval, said Sandler O’Neill & Partners LP’s Richard Repetto.

“Management did not make any definitive statements regarding future capital-management plans, but provided a number of data points that indicated it remains a real alternative,” Repetto, an analyst in New York, wrote today in a note about his meeting with Chief Operating Officer Larry Leibowitz and Chief Financial Officer Michael Geltzeiler. “The potential remains for NYSE and Deutsche Boerse to optimize their capital position and pay a one-time dividend to shareholders at the closing of the deal.”

The owner of the New York Stock Exchange agreed in February to merge with Frankfurt’s Deutsche Boerse in an all-stock transaction that aims to create the world’s largest exchange operator. NYSE Euronext (NYX) stock fell the most in two years on May 16, the day Nasdaq OMX Group Inc. (NDAQ) and IntercontinentalExchange Inc. (ICE) withdrew an unsolicited rival joint bid to buy NYSE Euronext for $11.3 billion and split the company between them.

While New York-based NYSE Euronext and Deutsche Boerse have boosted their initial estimates for cost and revenue synergies, a special dividend may help secure shareholder votes for the deal because investors like the idea of a cash component, according to Repetto. The transaction requires approval from 50 percent of NYSE Euronext owners and 75 percent of Deutsche Boerse holders.

No Buybacks

A special dividend is likely because neither company can buy back its shares before the merger is complete and there are limits on other dividend payments, wrote Repetto, who recommends buying NYSE Euronext shares. The one-time payment would likely be set up to benefit each companies’ owners equally, he added. Both NYSE Euronext and Deutsche Boerse now pay their holders quarterly dividends.

NYSE Euronext and Deutsche Boerse said in the February announcement that they expect the deal to close by the end of the year, though it still requires regulatory approval.

Shares of NYSE Euronext rose 0.2 percent to $35.30 at 10:25 a.m. New York time. That compares with the value of the Deutsche Boerse deal, at $36.28 a share.

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net.

To contact the editors responsible for this story: Nick Baker at nbaker7@bloomberg.net;

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