April 12, 2011
Could NASDAQ and NYSE Really Merge?
Posted by Christine Hurt

So, we've already blogged about the NYSE announcing two months ago a proposed merger with Deutsche Börse's (Usha's post, my post).  But, there is now a wrinkle.  NASDAQ, together with Intercontinental Exchange, has made an unsolicited offer to acquire NYSE Euronext for 16% more than Deutsche Börse's offer.  This NASDAQ offer, however, was rejected by the NYSE boardHere is NYSE Euronext's press release reaffirming the Deutsche Börse acquisition and rejecting what it calls the proposal "to break up" the company.  I'm hoping for a hostile tender offer, but I'm just funny that way.

So, why did the NYSE reject?  Well, it's pretty far down the road with Deutsche Börse and has already invested a lot in that transaction.   The "Business Combination Agreement" has a No-Shop clause, but it allows NYSE Euronext to negotiate after an unsolicited bona fide acquisition offer if it believes it to be a "superior offer."  The reasons offered by the Board, however, are that the proposed combination is not a superior offer because it would face antitrust regulatory hurdles and would be too highly leveraged. 

Breaking up NYSE Euronext, burdening the pieces with high levels of debt, and destroying its invaluable human capital, would be a strategic mistake in terms of where the global markets are going, and is clearly not in the best interests of our shareholders. The highly conditional break-up proposal from Nasdaq/ICE would also require shareholders to shoulder unacceptable execution risk.
As the article points out, these objections are not ones that are easily remedied by, for example, NASDAQ raising its bid.

So, why now?  In two weeks, NYSE shareholders have their annual meeting, where they will vote for directors and also have the ability to vote on a proposal giving 10% of the shareholder vote the right to call a special shareholder meeting.  Alienating the shareholders on the eve of that meeting may not be in the directors' best interests.  And, rejecting the NASDAQ bid without even meeting with the bidder seems to have done just that.  And, remember that many big players are NYSE shareholders -- people that NASDAQ knows and can go to and chat with.  And many are also NASDAQ shareholders, so NASDAQ management is doing just that.

Fun to watch.

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