Wall Street executives advising the New York Stock Exchange and the Frankfurt Exchange on their planned merger believe they can beat back any attempt by the rival Nasdaq to upend the deal with a hostile bid, people close to the matter tell FOX Business Network.
These people say that inside the NYSE, top officials, including chief executive Duncan Niederauer, have been bracing for a hostile bid from the Nasdaq and its CEO Robert Greifeld for days, and expect one to be issued imminently, these people say.
Greifeld desperately wants to upend the merger, which places the Nasdaq at a huge competitive disadvantage, and has been negotiating with lenders and the larger Intercontinental Exchange to come up with a competitive bid. Wall Street executives say the Nasdaq would have to bid as much as $13 billion to make a competitive offer, given the current price tag of the merger of around $9 billion. But advisers to the NYSE and the Frankfurt Exchange, also known as the Deutsche Boerse, are telling their clients they believe they can beat back the offer, and it goes beyond the likelihood that the Frankfurt Exchange could easily increase its offer. (Although the deal is being billed as a merger given the proposed new entity’s corporate structure, the Frankfurt Exchange is actually purchasing the NYSE in a deal worth around $9 billion.)
Among the reasons cited by bankers advising the NYSE and Frankfurt exchanges include the fact that the Nasdaq and the NYSE have overlapping businesses; these exchanges deal primarily in matching buyers and sellers of stocks. As a result, any combination would lead to widespread layoffs because of their overlapping businesses, particularly in the New York area, something that might be opposed by New York City mayor Michael Bloomberg, who has already given his blessing to the NYSE-Frankfurt combination, as well as Treasury Secretary Tim Geithner, who has also signaled his support.
Since the Frankfurt Exchange deals primarily in market making of derivatives, it’s considered a natural fit for the NYSE and its equity-driven business model. A NYSE-Nasdaq combo would likely lead to anti-trust concerns as well, though that is less of an issue these days since much of the business of matching buyers and sellers of stocks is done outside the confines of either exchange, and through electronic trading networks or so-called dark pools of liquidity, where trading desks of major firms match buyers and sellers on their own.
A bigger obstacle, these advisers are assuring people at the NYSE and Frankfurt Exchange, is that unfriendly, hostile bids as the Nasdaq offer would be, have a poor track record of success, and this one would be complicated by its financing structure. The Nasdaq, burdened by a heavy debt load on its balance sheet, is seeking financing help from the Intercontinental Exchange and outside sources, meaning it may be difficult for the Nasdaq to get into a bidding war with the Frankfurt Exchange if it chooses to increase its offer.
But Greifeld, the Nasdaq chief, may have no choice but to roll the dice and make a hostile offer, people close to the Nasdaq tell FOX Business. First, some lawmakers have voiced their opposition to a deal that essentially has a German exchange taking over an American institution. But a bigger incentive for Greifeld is the new competitive environment he finds himself in; for the past 20 years, the Nasdaq has been locked in a brutal competition with the larger NYSE, but now it will be competing with a global powerhouse if the NYSE-Frankfurt deal goes through.
Meanwhile, if the Nasdaq does nothing, people inside the exchange concede it will be in the same competitive position as if it lost the bidding war, meaning Greifeld might have to sell the Nasdaq to a bigger player like the Chicago Mercantile Exchange, the ICE or the London Stock Exchange to remain competitive.