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— Deals —
 "CME
Group Inc., the world's largest derivatives market, got even bigger
[Aug. 18] with the shareholder approval of its $8.3 billion purchase of
energy and metals trading market Nymex Holdings Inc., parent of the New
York Mercantile Exchange," The Deal's Donna Block wrote Aug. 19. The company will control 98% of trading with respect to U.S. futures and options on futures. First announced
in January, the deal was then valued near $11.3 billion, but ran into
opposition, which dragged on both exchanges' shares, she noted. Block
detailed the months that followed:
ACTIVITY IN THE MIDWEST
Meanwhile, CBOT and rival Chicago Board Options Exchange in early June disclosed they had reached a $1 billion settlement on a two-year-long fight. The suit was brought by CBOT members and their claim to an ownership stake in the options market they helped launch. A final settlement would enable CBOE to demutualize and go public or hook up with another exchange, Block explained. And not to be left out of the M&A wave among Chicago exchanges, the Chicago Stock Exchange said March 28 it had tapped Financial Technology Partners LP's Steve McLaughlin to assist as it weighed options. The decision possibly stemmed from activist shareholder pressure, The Deal's Taina Rosa wrote:
He mentioned foreign exchanges, like the London Stock Exchange plc or Toronto's TSX Group Inc., as potential bidders. It would be the latest deal for TSX, which unveiled in December a deal for Canadian peer Montreal Exchange Inc. On Feb. 13, the target's shareholders approved that merger. GIANT NYSE BATTLES NASDAQ, KEEPS GETTING BIGGER Meanwhile in late June, NYSE Euronext Inc. won an auction for a 25% stake in Qatar's Doha Securities Market,
which gave it access to the fast-growing economy, The Deal's Paul
Whitfield noted. "The $250 million deal opens a new front in the NYSE's
long-running battle with New York-peer Nasdaq Stock Market Inc., which
last year teamed with Doha's regional rival Borse Dubai Ltd.," he wrote. The news came just months after NYSE Euronext vowed in early February it would do more M&A, following the company's $200 million deal for market data systems provider Wombat Financial Software and weeks after it 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 in 2007 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, Block noted. The deal also can be viewed in light of Nasdaq's $652 million run at the Philadelphia Stock Exchange Inc. in November 2007. Writing for The Deal at the time 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 noted, NYSE's first deal under Niederauer:
The pair's ongoing competition has been notable. In a 2007 year-end feature highlighting a banner year for the Nasdaq, Slater weighed 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, 2007 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 that April reported to be eyeing the Philly to get into options trading, edged out larger rival NYSE Euronext, 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 marked the second recent play that Nasdaq had 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, 2007, 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 Inc., Credit Suisse Group, Deutsche Bank AG, Goldman, Sachs & Co., J.P. Morgan Chase & Co., Lehman Brothers Inc., Merrill Lynch & Co., Morgan Stanley, UBS and Wachovia Corp. -- known as the Portal Alliance. While many had started competing platforms, Reuters noted, the lot had agreed to come together on one platform, which would 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 unveiled on Dec. 10, 2007 its $1.3 billion deal for the Montreal Exchange, 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, as Middle Eastern investors began looking to exchanges
for deals, competition started to heat up. The Deal's Jonathan Braude likened the situation transpiring to a new Gulf war of sorts,
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 2007, it looked like the Qatar Investment Authority could spoil the party. 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 LSE and a 20% interest in the Nasdaq itself. The agreement enabled 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 giving it a small interest in the Middle Eastern exchange operator. The deal also meant Dubai would control 5% of Nasdaq voting rights, becoming the first Middle Eastern government to have a stake in a U.S. exchange, Whitfield pointed 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, 2007 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 have thwarted Nasdaq's takeover plans. To guard against such a situation, Nasdaq and Borse Dubai Sept. 26 sweetened their offer by nearly 15%. The multi-exchange saga began just as the last one was winding down. (See more on that 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 2007 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 exchange 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, 2007 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 it looked like Nasdaq could have a tough time selling the stake. 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 After months on ice, Chicago Mercantile Exchange Holdings Inc. won its battle for CBOT Holdings Inc. July 9, 2007, 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 2006, and it persevered to top a rival offer from InterContinentalExchange Inc., last valued at $11.9 billion. Keeping up the pace, Nymex was reported to be considering selling out to NYSE Euronext, Deutsche Börse AG or CME. Bloomberg said June 15, 2007 the world's largest energy exchange could be valued at $14.3 billion.
ICE's latest move had become common
among exchanges, which all seem to have visions of global
dominance. DOWN BUT NOT OUT After being repeatedly shot down in prospective mergers, two exchanges bounced back to announce deals in the first few months of 2007.
In March, the $14 billion merger that created NYSE Euronext birthed 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, 2007 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 exchange was in February 2007 again shot down in its proposed takeover of the LSE. Nasdaq returned to the bidding table for its target in late November 2006 with a $5.1 billion offer for the LSE and then set in place a Jan. 11, 2007 first closing date for the target 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, 2007. 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, dealmaking for its smaller peers went on. MONEY MONEY MONEY MONEY ... MONEY NYSE said preliminary results indicated shareholders overwhelmingly approved the merger plan Dec. 20, 2006 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 2006 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 2006, 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 then-chief executive John Thain said he would welcome the German and Italian exchanges into their alliance, first agreed to in June 2006. But, as 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 May 23, 2006 from nemesis DB, saying instead it wanted 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:
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