Mergers Meet Valuation Concerns in Exchanges (NYX, NDAQ, ICE, CBOE, CME)

The recently announced merger between the NYSE Euronext, Inc. (NYSE: NYX) and Deutsche Boerse has created a conundrum in the sector of exchanges.  Now there is a need to consolidate, but the valuations may be at levels deemed too high.  The notion of cross-border exchange consolidation is not new, but the real shock is that the United States could be allowing one of its iconic brands to come under foreign control.  What is interesting is that a research call from this morning actually has broader ramifications than was intended as valuations could come under fire.

IntercontinentalExchange (NYSE: ICE) was downgraded at Macquarie today to “Neutral” from “Outperform.”  Two issues cited were the run-up due to consolidation and the rise in energy prices increasing the trading activity at the exchange.  In short, both bring up valuation concerns and longevity concerns of these benefits.  Valuation concerns can never be made solely on market cap alone, but it is worth some $9.6 billion.

NASDAQ OMX Group Inc. (NASDAQ: NDAQ) has risen less than some of the exchanges.  Some fear that NASDAQ will be an acquirer and some feel that NASDAQ will try to remain as is with its $5 billion market cap.  There is fresh speculation, which has not caused a move in the stock, that the London Stock Exchange may have an interest

If any exchange is likely to be on the least stable independent footing it is CBOE Holdings, Inc. (NASDAQ: CBOE).  That is not due to finances, but due to a large stake still held by insiders and due to a limited time as a public company.  Its market cap is also $2.5 billion

If there is any rather large acquisition to be made, it will likely be from CME Group Inc. (NYSE: CME) if size has anything to do with it.  The combined CME and CBOT has a market cap of $20 billion and it has a market earnings-multiple premium without being involved in a merger.

JON C. OGG