Nasdaq OMX and IntercontinentalExchange bid $11.3 billion for NYSE Euronext in a politically charged effort to trump Deutsche Boerse's friendly deal to acquire the New York Stock Exchange.
The counterbid, unveiled on Friday in an appeal to U.S. patriotism, would redraw the world's capital markets so that Americans have a stronger hand than Europeans, just as exchange operators globally maneuver to come out on top.
The move presents U.S. lawmakers and regulators with a dilemma: whether to allow a German exchange to take control of the venerable New York Stock Exchange, or to allow the creation of a dominant American-run platform with massive market power.
The new offer is valued at $42.50 per share, Nasdaq and ICE said. The offer represents a 19 percent premium to NYSE's closing price on Thursday and is 27 percent above the company's valuation before Deutsche Boerse's $10.2 billion bid in February. It would give NYSE shareholders cash and stock.
Antitrust questions surround the agreement by Nasdaq and ICE to split up NYSE Euronext. The pair were left out of a recent merger frenzy capped by Deutsche Boerse's $10.2 billion deal for the Big Board parent.
Bringing Nasdaq and NYSE Euronext together would create a stock-trading powerhouse in the United States and Europe that would also dominate the business of listing U.S. public companies, and dwarf other U.S. options markets. It would be called NASDAQ NYSE Euronext.
Nasdaq Chief Executive Robert Greifeld, for years a fierce cross-town rival of NYSE's Duncan Niederauer, and ICE's Jeffrey Sprecher appealed heavily to U.S. patriotism, the country's thirst for new listings, and need for a more stable market.
It will create two nimble, forward-looking, entrepreneurial, global exchanges, Greifeld said on a call with analysts and media, adding later NYSE's surprise decision to sell out to the German boerse represented an unplanned-for opportunity.
Sprecher said: The U.S. can change its current course if the deal succeeds.
Already, the Deutsche Boerse bid was expected to attract intense regulatory scrutiny as the merged company would have a lock on European derivatives trading and clearing. The counter-bid shifts the antitrust focus to whether one entity should have a lock on U.S. listings.
Deutsche Boerse's bid had also stirred some political backlash from some lawmakers who opposed the idea of a foreign company taking over the symbolic centerpiece of Wall Street and U.S. capitalism.
Under the proposal, ICE would purchase many of NYSE's valuable derivatives business -- including the London-based LIFFE platform, seen as a profitable gem -- while Nasdaq would acquire its stock exchanges, U.S. options businesses and technology suite.
It's quite a bold move from Nasdaq and ICE. Certainly I think the premium they're paying is quite high, said Karl Morris, an analyst at Keefe Bruyette & Woods in London. It makes you wonder what Deutsche Boerse is going to do about this and I struggle to see how they can lift their bid to match.
Some details of how a deal would work have not yet been worked out. Nasdaq Chief Executive Robert Greifeld said on a conference call that the management and the board of directors have not yet been determined, and that he hasn't spoken to Niederauer or others on the NYSE management team.
But a group of banks led by Bank of America and Wells Fargo is prepared to arrange $3.8 billion of financing for the cash portion of the deal, Nasdaq and ICE said.
NYSE shares jumped about 11.1 percent to $39.08, while Deutsche Boerse shares were down 1 percent in Frankfurt. Nasdaq shares rose 3.6 percent to $26.77 and ICE shares slipped 3.7 percent to $118.92 in morning trade.
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NYSE's shares were trading more than 5 percent higher than the current implied value of the Big Board under Deutsche Boerse's deal. But they were still 7 percent below the Nasdaq-ICE offer price, which would indicate investors are yet not entirely convinced the Nasdaq bid would succeed.
The calculations are based on 261.2 million NYSE shares and 195 million Deutsche Boerse shares outstanding, according to Thomson Reuters data.
Deutsche Boerse said it continues to strongly believe that the envisaged merger of Deutsche Boerse AG and NYSE Euronext is the best possible combination for both shareholder groups and the stakeholders of the companies.
For now, Deutsche Boerse is studying the offer and relying on Nasdaq shareholders and U.S. regulators to scrutinize the deal before deciding its next move, a person familiar with Deutsche Boerse's thinking said on Friday.
NYSE Euronext said its board would carefully review the new offer and urged shareholders not to take any action pending its review. A source said there was some shock that the cash portion of the counterbid was so small.
Greifeld and Sprecher have mixed deal-making records.
Their unusual partnership and counterbid comes amid an expected wave of tie-ups in the increasingly competitive and global exchange business, where companies are linking up and pushing into derivatives to survive and grow.
In LIFFE, Sprecher would get an interest-rate business that eluded him when ICE's bid for the Chicago Board of Trade failed four years ago.
For Nasdaq, the deal would expand its core, albeit low-margin, stock-trading business, and could raise questions for shareholders well aware that the other exchange deals are driven largely by a need to diversify into more profitable derivatives trading.
In a flurry in February, Deutsche Boerse agreed to buy NYSE, the London Stock Exchange Group Plc announced a deal to take over Canadian market operator TMX Group Inc. Late last year, Singapore Stock Exchange bid for Australia's ASX Ltd.
When Deutsche Boerse unveiled its bid for NYSE, CEO Reto Francioni acknowledged that we have a bumpy road ahead of us. Observers say his career hinges on winning NYSE.
Under the counter-bid, NYSE shareholders would receive $14.24 in cash plus 0.4069 of a share of Nasdaq stock.
Under the Deutsche Boerse proposal, which still awaits approval by shareholders and regulators, each share of NYSE Euronext stock would be exchanged for 0.47 share of the combined company's stock.
Nasdaq and ICE said that within 12 to 18 months, the combined franchise would provide double-digit accretion to shareholders and save $740 million in operating costs per year.
The deal outlined by Deutsche Boerse would deliver $5.4 billion in total combined revenue and $400 million cost savings and immediately add to adjusted earnings for shareholders, according to those companies.
Bank of America Merrill Lynch and Evercore Partners are advising Nasdaq, while Lazard, Broadhaven Capital Partners, and BMO Capital Markets Corp are advising ICE.
(Additional reporting by Edward Taylor in Frankfurt and Jonathan Stempel in New York, editing by Dave Zimmerman)