Nasdaq OMX (NYSE:NDAQ) and Intercontinental Exchange (NYSE:ICE) this morning submitted a counter bid for NYSE Euronext (NYSE:NYX) valuing the firm at around $11.3 billion and equating to a $42.50 stock price. NYSE announced in February that Frankfurt’s Deutsche Boerse AG (OTCPK:DBOEF) offered to acquire the firm in a transaction that would give Deutsche Boerse shareholders 60% ownership of the new company.
Price Was Main Delay in Submitting the Bid
Nasdaq and ICE agreed on the basic structure of the deal weeks ago where Nasdaq would acquire NYSE’s stock trading and listing business while ICE would get the derivatives trading business based in London. The bid from Nasdaq and ICE took some time as reports circled that ICE felt less urgency to bid for NYSE, and the pair wanted to see if anti-trust concerns would surface in Europe relating to NYSE and Deutsche Boerse’s potential deal. 
One of the biggest points of concern for ICE and Nasdaq was the price that they would need to pay for NYSE Euronext. They had tentatively agreed to pay more than $40 a share or $10.5 billion for NYSE Euronext but some analysts predicted that they would need to pay at least $43 a share if they want to have a chance at winning this bid. Deutsche Boerse’s bid for NYSE Euronext values the company at around $35.75 a share.  Today’s bid of $42.50 might just do the trick and values the firm at a 19% premium to the Germans’ bid and a 27% premium to NYSE’s “unaffected” price on February 8. 
How NYSE Could Provide Value to Nasdaq?
NYSE is the world’s leading operator in stock trading and listing and provides trading platform and services for trade execution of stocks listed on its exchanges – NYSE, NYSE Arca, NYSE Amex as well as for the orders that are routed to other market centers for execution. In 2010, it controlled nearly 26% of the cash equity trading market in the U.S. If Nasdaq acquired NYSE, it would become the leader in the cash equity trading market in the U.S. with about 44.6% market share.
A rise in trading volume will proportionally reduce costs for Nasdaq because it already has the technological infrastructure in place to carry out large trading volumes. Both ICE and Nasdaq have made acquisitions in the past and were able to cut operating expenses significantly. We estimate that Nasdaq’s operating margin for its U.S. cash equity trading division could reach around 14% in 2011, from 10.3% in 2010, as IT cost savings and business synergies help improve its profitability.Notes:
- Nasdaq, ICE Trip Up on NYSE Bid Terms, March 18, 2011, WSJ
- Nasdaq, ICE Weigh a Price for NYSE, March 28, 2011, WSJ
- Nasdaq, ICE Outbid Deutsche Boerse for NYSE
Disclosure: No positions