A Curse for the Winner of NYSE Euronext?

We believe that NYSE Euronext shareholders would be the ultimate beneficiaries of a bidding war, with the acquirer possibly saddled with a winner's curse

Michael Wong, CPA 7 April, 2011 | 2:56PM
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NASDAQ OMX Group (NDAQ) and IntercontinentalExchange (ICE) have made a bid to acquire NYSE Euronext (NYX) for $42.50 per share in cash and stock. Consideration will be in the form of $14.24 cash, 0.4069 NASDAQ OMX shares, and 0.1436 IntercontinentalExchange shares for each share of NYSE Euronext. The total announced acquisition price is $11.3 billion, 19% higher than the proposed merger price of Deutsche Boerse (DB1) for NYSE Euronext. At the moment, we are maintaining our fair value estimate for NASDAQ OMX, IntercontinentalExchange, and Deutsche Boerse. We are likely to moderately increase our fair value estimate for NYSE Euronext.

In the proposed acquisition, NYSE Euronext's business would be split between NASDAQ OMX and IntercontinentalExchange. NASDAQ OMX would be acquiring NYSE Euronext's US cash equities, European cash equities, US options, listings, data, and technology businesses for approximately $7 billion. This price includes $2 billion from the assumption of NYSE Euronext's debt. IntercontinentalExchange would be acquiring NYSE Euronext's European futures, US futures, over-the-counter derivatives, and clearing businesses for approximately $6.3 billion.

The NASDAQ OMX-IntercontinentalExchange joint bid for NYSE Euronext is expected to come with $740 million of annual expense and revenue synergies. This is compared to $533 million of estimated synergies between Deutsche Boerse and NYSE Euronext. It makes sense that NASDAQ and ICE are willing to bid more, as they estimate higher merger synergies. NASDAQ OMX should be able to realise significantly more expense synergies than Deutsche Boerse due to overlaps in technology and products in the US. That said, we aren't sure if the $207 million difference in synergies fully justifies the additional premium between Deutsche Boerse's implied merger price and NASDAQ and ICE's offer.

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Michael Wong, CPA  Michael Wong is a stock analyst at Morningstar.

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