New M&A Could Emerge on the Exchange Market

We expect to hear of other deals now that Nasdaq OMX and IntercontinentalExchange are free to pursue other strategic mergers and acquisitions

Michael Wong, CPA 19 May, 2011 | 12:14PM
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Nasdaq OMX Group (NDAQ) and IntercontinentalExchange (ICE) announced they are withdrawing their offer to acquire NYSE Euronext (NYX) earlier this week. This announcement follows discussions with the US Department of Justice that found serious anticompetitive concerns in regard to stock listings, opening and closing stock auctions, off-exchange trade reporting, and data products. We don't anticipate any material changes in our fair value estimates for any of the exchanges in our coverage universe.

The withdrawal of the proposal makes the decision process for NYSE Euronext shareholders easier, as NYSE Euronext shareholders don't have to weigh the relative merits of being acquired by Nasdaq OMX and IntercontinentalExchange over merging with Deutsche Boerse (DB1). Shareholders now just have to weigh whether they believe NYSE Euronext is more valuable as a stand-alone entity or as part of the global exchange behemoth that potentially will be Deutsche Boerse-NYSE Euronext. Deutsche Boerse shareholders also can be more reassured as to the terms of the merger and that the deal price for NYSE Euronext won't be increased. That said, regardless of what NYSE Euronext and Deutsche Boerse shareholders eventually vote upon, European antitrust concerns over the combined company's dominance of exchange-traded derivatives has to be resolved.

We continue to believe that Nasdaq OMX's and IntercontinentalExchange's competitive positions are still relatively stable without a merger with NYSE Euronext. The only asset that Deutsche Boerse adds to NYSE Euronext's portfolio is its ISE options exchange business. Combining their US options market share and unifying their strategies isn't a game-changer for the US trade execution landscape. We also believe that the combined portfolio of Deutsche Boerse's and NYSE Euronext's European assets don't pose a material threat to Nasdaq OMX's Nordic and Baltic exchange businesses. The part of IntercontinentalExchange's portfolio that is concentrated in globally relevant commodities, such as energy and agricultural products, is as strong as it has ever been. That said, acquiring NYSE Euronext's futures business would have brought welcome diversification into more financial orientated products such as interest rates and equity indexes.

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About Author

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