Nasdaq OMX Group Inc and IntercontinentalExchange withdrew their hostile $11.3 billion bid for rival NYSE Euronext on Monday, citing opposition from U.S. antitrust regulators.
The withdrawal of the offer removes a major hurdle to NYSE Euronext's plans to sell itself to Deutsche Boerse AG for $9.9 billion.
The deal with Deutsche Boerse must still win regulatory and shareholder approval in Europe and the United States, but investors said the odds of the merger going through now had improved substantially.
To me, it's a clear signal that Deutsche Boerse's offer will go ahead, said fund manager Juergen Meyer of SEB Asset Management, which owns Deutsche Boerse shares. That's what I'm expecting, actually.
In a statement, the U.S. Justice Department said that if the Nasdaq-ICE bid had not been abandoned, it would have filed a lawsuit to stop it.
NYSE shares fell 10.4 percent while Deutsche Boerse rose 4.1 percent after news of the Nasdaq-ICE decision. NYSE shares were trading at $36.65, closer to the implied $37.79 per share price in the Deutsche Boerse deal.
Nasdaq was up 1 percent and ICE was up 5.8 percent.
The withdrawal of the Nasdaq-ICE bid leaves Nasdaq searching for its next move. It could look at deals with other exchanges such as Singapore Exchange or London Stock Exchange Group.
They need to continue to run a strong operation. They also need to keep their eyes on the horizon for any strategic opportunities. said Keith Wirtz, chief investment officer at Fifth Third Asset Management, which has $18 billion in assets and owns more than 60,000 Nasdaq shares.
Nasdaq needs to pursue deals that would provide growth, including in Asian markets and derivatives products, Wirtz said.
They need to make sure they have their capital war chest prepared, he added.
In a statement, Nasdaq CEO Bob Greifeld said his company was surprised and disappointed with the decision by U.S. Justice Department antitrust regulators.
Greifeld said it became clear that regulators would not give the go-ahead for a deal despite Nasdaq and ICE offering a variety of remedies to address antitrust concerns.
Combining Nasdaq and the NYSE would have brought together the top two U.S. stock exchanges, creating a virtual monopoly on listings and dominance in trading U.S. cash equities and options.
The Justice Department, in its statement, said, The acquisition would have substantially eliminated competition for corporate stock listing services, opening and closing stock auction services, off-exchange stock trade reporting services, and real-time proprietary equity data products.
Other deals struck in the recent global exchanges consolidation frenzy have also run into trouble over national-interest or regulatory concerns.
Singapore Exchange last month had to abandon its deal with Australia's main exchange after it was rejected on national-interest grounds.
More recently, LSE's bid to buy TMX Group hit rough waters after a group of Canadian banks and pension funds came up with a counter proposal for the Ontario-based exchange operator, touting the benefits of such a deal to Canada.
Much like national airlines and other things that are sovereign by nature, there is a lot of politics involved in these exchanges, Wirtz said.
Nasdaq and ICE first offered to buy the New York Stock Exchange's parent on April 1, seeking to thwart NYSE Euronext's friendly deal with Deutsche Boerse, announced in February.
NYSE Chief Executive Duncan Niederauer refused to talk to Nasdaq and ICE about their offer, but some NYSE shareholders thought he should.
Investors are now likely to back the NYSE board's decision.
I doubt that we will see the shareholders demand an elevation. I think they will rely on the advice of the board at this stage, said Wirtz, whose firm also owns more than 160,000 NYSE shares.
The Nasdaq-ICE offer would have split NYSE Euronext in two: Nasdaq would have acquired NYSE's equities and equities options business, and ICE would have bought its London-based futures unit, Liffe.
NYSE's board twice rejected the unsolicited offer, and Nasdaq said earlier this month that it and ICE would go directly to NYSE shareholders with a hostile bid.
NYSE acknowledged the withdrawal of the Nasdaq-ICE proposal on Monday.
Deutsche Boerse also acknowledged Nasdaq's decision and said it would continue with the NYSE Euronext deal process.
(Additional reporting by Edward Taylor and Christoph Steitz in Frankfurt; Editing by Lisa Von Ahn and John Wallace)