Nasdaq OMX Group Inc. held preliminary talks with Carlyle Group LP about going private before the discussions broke down on price, according to a person with direct knowledge of the matter.
The talks were initiated by Carlyle Chief Financial Officer Adena Friedman, who left Nasdaq in 2011 as chief financial officer and head of corporate strategy, said the person, who asked not to be identified because the meetings were private. Nasdaq surged 3.6 percent to a four-year high of $30.53 at 1:25 p.m. in New York. The shares gained as much as 9.1 percent, the biggest intraday advance since August 2011.
Exchange companies, struggling to boost earnings amid shrinking profits for securities trading, have been the subject of more than $50 billion of takeover bids since 2010, according to data compiled by Bloomberg. NYSE Euronext agreed in December to be acquired by IntercontinentalExchange Inc. and London Metal Exchange was bought by Hong Kong Exchanges and Clearing Ltd.
“Why Nasdaq sells is because it creates shareholder value,” Rich Repetto, an exchange analyst at Sandler O’Neill & Partners LP in New York, said in a phone interview. “If they could sell it at $35 or $40, I think they’d be pretty happy,” he said. “If they can sell and create more value than what they think they can by just operating organically, then it’s the board’s duty to look at those options.”
Rob Madden, a spokesman for Nasdaq OMX, declined to comment, saying the company doesn’t speak about “rumors or speculation.” Carlyle’s spokesman Randy Whitestone declined to comment. The talks were reported earlier by Fox Business Network.
Nasdaq Chief Executive Officer Robert Greifeld is re-organizing business units and reducing expenses as revenue from trading shrinks around the world. The exchange is expanding into derivatives, setting up a new London-based market and buying a 25 percent stake in a Dutch alternative trading system focused on stocks and equity derivatives.
The company reported fourth-quarter earnings that beat analysts’ estimates on Jan. 31 after cutting costs. Profit in the three months ended Dec. 31 jumped to $85 million, or 50 cents a share, from $82 million, or 45 cents, in the fourth quarter of 2011.
The shares have been trading at an average 10.6 times reported earnings since 2009, compared with 18.8 for the Bloomberg World Exchanges Index. The multiple was at 11.8 last week, the second-lowest of the 25-member index, behind London Stock Exchange Group Plc’s 6.5, data compiled by Bloomberg show.
“I think Carlyle was looking for an opportunity to make money and Nasdaq wanted to boost their valuation,” Matthew Heinz, a St. Louis, Missouri-based exchange analyst at Stifel Nicolaus & Co., said in a telephone interview. He recommends buying the shares. “They’ve been frustrated with their valuation for a long time.”
Nasdaq bought back $275 million in stock in 2012, bringing the total in repurchases to $1.172 billion since January 2010.
NYSE Euronext, the biggest operator of U.S. exchange, announced in December it agreed to be bought by IntercontinentalExchange Inc. in an $8.2 billion cash and stock deal, set to close later this year. NYSE opted for the deal with the 12-year-old energy and commodity futures bourse over an offer from Warren Buffett’s Berkshire Hathaway Inc. in November.
When NYSE was planning to merge with Deutsche Boerse AG in Frankfurt in 2011, Nasdaq OMX and IntercontinentalExchange made a joint hostile bid for the U.S. exchange in an attempt to derail the deal. The Deutsche Boerse deal was rejected by European competition authorities in February 2012, while the Nasdaq-IntercontinentalExchange bid was blocked in the U.S. on concern the combination would dominate American stock listings.