A battle for control of the New York Stock Exchange moved into dueling appeals to shareholders Monday, a day after a rival bidder complained that its $11.3 billion bid was rejected without discussion.
NYSE Euronext Inc. said Sunday that its board decided to turn down an offer from rival Nasdaq OMX Group Inc. and IntercontinentalExchange Inc. because it was "highly conditional" and would have caused unnecessary risk for shareholders. Instead, the company reaffirmed its plan to combine with German exchange operator Deutsche Boerse AG in a $10 billion deal.
Nasdaq and Intercontinental Exchange Inc. say their bid is "clearly superior." ICE Chairman and CEO Jeffrey Sprecher said in a statement that by declining to meet with Nasdaq and ICE, the NYSE's board was ignoring its obligation to its stockholders.
"I would expect that NYSE Euronext's stockholders will make their displeasure known to the board," he said.
As NYSE's annual shareholder meeting on looms on April 28th, the time is narrowing for NYSE executives to convince their investors to stick with the agreed-to bid in the face of a more lucrative offer. Nasdaq and ICE will continue to meet with NYSE shareholders in an attempt to put pressure on company executives and force a meeting, according to people familiar with the two companies' plans.
The structure of the NYSE agreement with the German exchange as a merger, rather than a sale, could give company's board a legal justification to reject a higher offer, analysts say. But those points may become moot if Nasdaq or ICE is successful in convincing NYSE shareholders to become directly involved through a proxy vote or a tender offer, said Richard Repetto, an analyst at Sandler O'Neill who covers the company.
The higher offer comes with its own risks for shareholders, such as the lack of a large break-up fee that would be paid to NYSE shareholders in case the deal does not go through. Chief among them is whether the Nasdaq-led bid could pass regulatory hurdles by combining virtually all U.S. stock listing under one roof, a move that would lead to job losses in the financial services industry.
"Part of the problem for a shareholder is that while you would like a larger bid, do you turn down the bird in the hand for a bird with very big conditions associated with them?" said John Coffee, a professor at Columbia Law School who is an expert in securities law. "The anti-trust problem is immense and unprecedented. You never saw General Motors and Ford merge."
The other key issue for shareholders is the use of debt to finance the deal. Nasdaq would borrow up to $3.8 billion as part of its offer, a risk that some analysts said could prompt ratings agencies to downgrade the company. NYSE board members pointed to Nasdaq "burdening (the company) with high levels of debt" in unanimously rejecting the offer.
The moves come as the future of the global financial markets are changing rapidly. Technology has driven down the costs of trading, and newer companies like BATS Exchange and Direct Edge have taken away business from established players like NYSE and Nasdaq. While this has led to cheaper fees and better trade execution for lay investors, it has forced exchange companies to look for deals to ensure their survival.
The proposed merger of Deutsche Boerse and NYSE Euronext would create the world's largest stock exchange operator. The rival bid from Nasdaq and ICE would split NYSE into two companies, with ICE taking on its lucrative derivatives business and Nasdaq taking its remaining businesses, which includes stock exchanges in Paris, Brussels, Amsterdam and Lisbon, as well as its U.S. options business.