From Shame to Antitrust: NYSE and NASDAQ-ICE Merger (NYX, NDAQ, ICE, CME)

First it was the shame that one of America’s greatest names was going to effectively be foreign-owned.  The NYSE Euronext, Inc. (NYSE: NYX) is currently in a pending merger agreement with Deutsche Boerse but the rumored rival deal has now surfaced.  NASDAQ OMX Group Inc. (NASDAQ: NDAQ) and the IntercontinentalExchange, Inc. (NYSE: ICE) have now jointly announced a new proposal to acquire NYSE Euronext (NYSE: NYX).

There has been quite a bit of public scrutiny in the German deal.  Imagine America’s great stock exchange and the name behind capitalism coming mostly under what is perceived as German ownership.  This new merger offer will likely have antitrust issues and will require a long review process due to the size and scale. 

NASDAQ and ICE are calling their new offer a premium of 19% more than what the Deutsche Boerse offer is.  A price of $42.50 per share in cash and stock is the determined value set by NASDAQ and ICE.  As far as size in total, it comes to some $11.3 billion based on the closing share prices on March 31, 2011.  The new offer is also said to represent a 27% premium over NYSE Euronext’s unaffected stock price on February 8, 2011 (the day before the merger first surfaced). 

Here are the terms of the proposal.  NYSE Euronext stockholders are being offered $14.24 per share in cash.  The stock component is 0.4069 shares of NASDAQ OMX common stock and 0.1436 shares of ICE common stock per NYSE Euronext share.  The ultimate price depends upon where NASDAQ and ICE shares trade this morning and hereafter, but the tally comes to $42.50 per NYSE share based on yesterday’s closing prices of NASDAQ and ICE.

As an American it has felt almost shameful that a brand as powerful as the New York Stock Exchange could end up in what is perceived as foreign ownership.  As a market observer, it is impossible to not think that the mix of futures, stocks, and options that a Trifecta NYSE-NASDAQ-ICE exchange will have extreme power over market participants.  The exchanges claim that there are very few barriers to entry and that new private and semi-private exchanges take away the business all the time.  From an outsider’s view that is not as clear.

Let’s not forget about CME Group Inc. (NYSE: CME).  The CME is the combined Chicago Mercantile Exchange and Chicago Board of Trade.  Recent comments would not lead us to believe that the CME will step in for a rival bid.  While there are other exchanges, this new NYSE-NASDAQ-ICE would make market participants choose from two giant powerful exchanges and a bunch of smaller exchanges and smaller trading platforms.

Pick your poison… Antitrust issues or losing a great brand to a foreign owner. 

JON C. OGG