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 M&A among stock exchanges looks poised to continue its ride in 2008. CME Group Inc. has its eye on Nymex Holdings Inc., the world's largest energy exchange, and the pair could be working on a deal worth up to $11 billion.
(See more on CME's dealings below.) As The Deal's Donna Block noted Jan. 28:
Meanwhile, NYSE Euronext Inc. stepped up Jan. 17 and announced plans to acquire American Stock Exchange LLC for $260 million after years of speculation the two would eventually link up. The target last year hired Morgan Stanley to advise it on becoming a for-profit company ahead of a possible merger or IPO, but the NYSE emerged as a front-runner weeks ahead of the deal, Donna Block noted. The deal also can be viewed in light of Nasdaq Stock Market Inc.'s $652 million run at the Philadelphia Stock Exchange Inc. in November. As Dan Slater noted, Nasdaq was "betting that the Phil-Ex's strategic investors -- the five Wall Street firms and one hedge fund that held 90% of the exchange -- would continue to send order flow to Philly, even after they cashed out on the deal." Of NYSE's deal, he notes, NYSE's first deal under Niederauer:
The pair's ongoing competition has been notable. In a year-end feature highlighting the banner year the Nasdaq Stock Market Inc. has had, Dan Slater weighs in. "After running behind the NYSE in the race to consolidate, Nasdaq amassed a formidable presence in the options market. Who's lagging now?" Consider its climb: Slater noted Nov. 12 that betting on one of the smaller, regional exchanges in 2005 proved a winning move for five Wall Street banks and the hedge fund that collectively could make 17 times their investment in the Phil-Ex, which on Nov. 7 went to Nasdaq. The exchange was in April reported to be eyeing the Philly to get into options trading, edged out larger rival NYSE Euronext Inc., and Credit Suisse Group, Citigroup Inc., Morgan Stanley, Merrill Lynch & Co., UBS and Citadel Investment Group LLC will take home a tidy profit. The deal marks the second recent play that Nasdaq has made for a regional exchange, as the company in October agreed to pay $61 million for the Boston Stock Exchange Inc., enabling it to offer a second quote in the U.S. equities market. Shortly after the Philly news, private equity firms Hellman & Friedman LLC and Silver Lake unveiled plans to cash out of Nasdaq through a $1 billion stake sale and the sale of $530 million in shares, respectively, reaping threefold and 3.5-fold returns. Nasdaq also said Nov. 12 that 12 firms had agreed to join forces with the exchange on its electronic platform for trading unregistered securities -- including Bank of America Corp., Bear, Stearns & Co., Citigroup, Credit Suisse, Deutsche Bank AG, Goldman, Sachs & Co., J.P. Morgan Chase & Co., Lehman Brothers Inc., Merrill Lynch, Morgan Stanley, UBS and Wachovia Corp. -- known as the Portal Alliance. While many had started competing platforms, Reuters notes, the lot has agreed to come together on one platform, which will operate under SEC rule 144a, which allows for the private resale of securities to qualified institutional buyers, which offer public market liquidity minus the regulatory burden of IPOs, like Goldman Sachs' GSTrUE. UP NORTH Meanwhile, after months of back-and-forth dialogue, TSX Group Inc., the parent of the Toronto Stock Exchange, unveiled Dec. 10 a $1.3 billion deal fo Montreal Exchange Inc., uniting its stock exchanges with the target's derivatives exchange to go head to head with international competition. As The Deal's Peter Moreira wrote:
OVER SEAS Meanwhile, Middle Eastern investors are looking to exchanges for deals and competition is hot. The Deal's Jonathan Braude called the situation transpiring a new Gulf war, a paper battle in which the weapons are shares in global exchanges and combatants are the royal houses of Dubai and Qatar. While Nasdaq and state-controlled Borse Dubai made nice in September, the Qatar Investment Authority could spoil the party, but the two are doing all they can to stop it. Borse Dubai, the Middle East exchange operator that had busted in with an offer higher than Nasdaq's agreed-to takeover for Sweden's OMX AB, agreed to instead take both Nasdaq's 28% stake in the London Stock Exchange Group plc and a 20% interest in the Nasdaq itself. The agreement enables Nasdaq to proceed with its planned OMX takeover, (letting Borse Dubai proceed with its own offer, then exchanging 60.6 million Nasdaq shares and paying nearly $1.7 billion in cash for the exchange) and gives it a small interest in the Middle Eastern exchange operator. The deal also means Dubai will control 5% of Nasdaq voting rights, but it becomes the first Middle Eastern government to have a stake in a U.S. exchange, as The Deal's Paul Whitfield points out. All eyes then turned to the Qatar Investment Authority, a fund controlled by the Qatar state, which had been expected to pick up the LSE stake and revealed Sept. 20 it had acquired 20% of the exchange's shares. While the fund said it did not intend to make an offer for the LSE, it reserved the right to change its mind if a third party came in. In another statement, it also revealed a 10% holding in OMX, which could thwart Nasdaq's takeover plans. To guard agaist such a situation, Nasdaq and Borse Dubai Sept. 26 sweetened their offer by nearly 15%. This multiexchange saga began just as the last one was winding down. (See below.) Tech-heavy Nasdaq -- which circled the LSE for months without ever winning control of its target, but which will still have a 3.5% interest after its Borse Dubai deal -- agreed in May to go another route and pay nearly 25.1 billion Swedish kronor ($3.7 billion) for OMX. Then Dubai said it wanted to buy at least a quarter of the Nordic and Baltic exchanges operator and was willing to pay nearly 14% more per share. (The later announcement amounted to a public takeover offer, but the bidder wasn't penalized, however, though Sweden's financial regulator determined it had breached Swedish takeover laws in its pursuit.) Nasdaq said Aug. 20 it would sell its LSE stake to pay down debt and buy back shares, not to boost its own share price and raise cash to improve its own offer for OMX, as some speculated. Analysts told Whitfield Sept. 10 that Nasdaq could have a tough time selling the stake. Meanwhile, Nasdaq on August 2 threw its support behind LSE's $2.2 billion plans to acquire Borsa Italiana SpA despite speculation it could seek to block the deal and possibly go after LSE again itself. COLD AS ICE Meanwhile, after months on ice, Chicago Mercantile Exchange Holdings Inc. won its battle for Cbot Holdings Inc. July 9, when its sweetened $11.5 billion bid and gained a regulatory nod and shareholder approval. The price tag far surpassed the $8 billion it originally offered in October, and it persevered to top a rival offer from InterContinentalExchange Inc., last valued at $11.9 billion. Keeping up the pace, Nymex Holdings Inc., the parent of the New York Mercantile Exchange, was reported to be considering selling out to NYSE Euronext, Deutsche Börse or CME. Bloomberg said June 15 the world's largest energy exchange could be valued at $14.3 billion.
ICE's latest move has become common among exchanges of late, which all seem to have visions of global dominance. Though the merger may be on ice, M&A among exchanges remains hot. DOWN BUT NOT OUT After being repeatedly shot down in prospective mergers, two exchanges bounced back to announce deals in the past few months.
In March, the $14 billion merger that created NYSE Euronext Inc., for which NYSE had secured 91% of Euronext shareholder approval by March 27, gave birth to the world's largest exchange and the first intercontinental operator. While NYSE may have wooed its cross-pond counterpart, launched its long-anticipated tender offer Feb. 15 and won majority shareholder approval six weeks later, things were less rosy for its smaller U.S. peer, the Nasdaq, in pursuit of a similar arrangement -- the tech-heavy exchange was shot down in February, again, in its proposed takeover of the LSE. Nasdaq returned to the bidding table for its target in late November with a $5.1 billion offer for its London counterpart and then set in place a Jan. 11 first closing date for the LSE to accept its hostile bid -- months after proposing a merger, being rebuffed, retreating and then launching a campaign to buy up the target's shares. LSE shareholders trounced the bid, with only 0.5% of shareholders voting in favor of the tie-up, and is instead forging ahead with a share buyback intended to fend off the hostile bidder. The LSE news came nearly two months after NYSE won Euronext's hand and just days ahead of the U.S. Securities and Exchange Commission green-lighting the deal Feb. 14. The same day, Paris-based Euronext NV said it would cut its stake in Europe's largest clearinghouse LCH.Clearnet, reaping about $600 million. And Frankfurt's Deutsche Börse picked up a 5% stake in an India's second-largest exchange operator, Bombay Stock Exchange Ltd., for 1.89 billion rupees ($42.7 million). With the union of NYSE-Euronext locked up, creating the world's largest exchange, dealmaking for its smaller peers has gone on. MONEY MONEY MONEY MONEY ... MONEY In December 2006, NYSE said preliminary results indicated shareholders overwhelmingly approved the merger plan Dec. 20, a day after Euronext shareholders did the same. Meanwhile, LSE reiterated its opposition to a deal Dec. 19, which sent Nasdaq shares tumbling down 5.1%, to $34.16. The November Nasdaq offer came just days after Deutsche Börse abandoned its own pursuit of Euronext, which cleared much of the way to a NYSE-Euronext team up. DB's retreat ended months of search for a partner. In October, the scorned suitor signed a letter of intent to merge with Borsa Italiana SpA. Talks later broke down, but at the time, Borsa Italiana's chairman and chief executive Massimo Segre said the merged entity would represent a stronger prospective partner for Euronext and they would later consider a tie-up with NYSE. So NYSE chief executive John Thain said he would welcome the German and Italian exchanges into their alliance, first agreed to in June. But, as The Deal's Paul Whitfield pointed out: "There's just one problem: Neither of the two exchange groups is talking about the same deal."
WE SAID NO Euronext rejected a €6.6 billion ($8.8 billion) offer Tuesday, May 23, from nemesis Deutsche Börse, saying instead it wants to team up with NYSE. DB came back with another offer -- to let its target's chief executive take the helm of a merged Euronext-DB. Again, Euronext declined. As Whitfield also noted:
STRANGE EXCHANGES
MERGING MARKETS Other 2006 highlights:
--Carolyn Murphy
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