Nasdaq OMX Group Inc.
) culminated acquisition of the corporate management arm of
Thomson Reuters well within the scheduled expectation of closure
by the first half of this year.
Announced in Dec 2012, the deal was inked for $390 million,
whereby the company had agreed to obtain the Public Relations,
Investor Relations and Multimedia Solutions businesses of Thomson
Reuters. These three businesses will now be amalgamated with
Nasdaq's Global Technology Solutions operations.
Excluding the costs related to the deal, the transaction is
projected to be accretive within the first year of purchase and
generate accentuated cost synergies of $35 million annually,
thereby reflecting incremental returns on capital as well.
Moreover, the acquisition is estimated to shore up Nasdaq's
revenue from corporate solutions services to about $330 million
from the current $97 million. This reflects a more than
three-fold increase in revenue, accounting for more than 7% of
total revenue for the company currently.
Through this deal, Nasdaq aims to accelerate its
non-transaction revenue base, which already represents over 70%
of the company's total revenue. While revenue from equity and
derivative trading have been marred by volumes declines, the
latest acquisition will likely boost the corporate management
solutions with an additional client base of over 10,000 in more
than 60 countries across the globe, thereby diversifying and
delivering positive results for the company in the future.
We believe that Nasdaq's strategic efforts to enhance its
fraying market position are also crucial given the challenges
posed by the recent reforms in the US. As a result, the company
struck a deal with BGC Partners Inc. in Apr 2013, to buy its
electronic trading platform for the US Treasury - eSpeed for
$1.23 billion. In the same month, Nasdaq also completed the
acquisition of 25% stake in The Order Machine (TOM) - the Dutch
cash equity and equity derivatives trading platform.
Lower Debt Eases S&P's Concern
Previously, Nasdaq had planned to fund the combined purchase
bill of the eSpeed and Thomson Reuters acquisitions primarily
through a $1.0 billion bond sale. However, given the caution
raised by the ratings agencies, the company will now use $350
million of its cash and raise only about $750 million from bonds.
Alongside, Nasdaq also plans to use a bank credit line worth $79
Although the process would still escalate the company's total
debt by 40%, it will still be much lower than previously
expected. Moreover, Nasdaq aims to reduce this debt over the next
12 months, in order to pacify S&P's concern over the
company's rising debt. While any deterioration from the current
scenario is likely to impel the rating agency to demote Nasdaq's
credibility from the current "BBB" rating, S&P seeks to wait
and watch for any improvement.
While Nasdaq carries a Zacks Rank #4 (Sell), other stocks in
the financial sector that are outperforming include
CBOE Holdings Inc.
Ellington Financial LLC
Nationstar Mortgage Holdings Inc.
). All of these stocks carry a Zacks Rank #1 (Strong Buy).
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