Nasdaq OMX Group Inc.
) announced its intention to purchase
BGC Partners Inc.
) electronic trading platform for the US Treasury - eSpeed. The
deal is valued at $1.23 billion and is scheduled to culminate by
Accordingly, Nasdaq agreed to pay BGC $750 million in cash,
while about $484 million will be paid through stock ownership.
The shares will be paid out by Nasdaq over a 15-year period with
annual issuance of about 1 million shares, depending on the
performance of the operation.
With annual revenue generation of about $100 million, eSpeed
trades in US Treasury notes and bonds with a maturity profile
anywhere between 2 and 30 years. These highly liquid bonds are
primarily traded by the bank giants and have a daily turnover of
over $500 billion. Post the closure of the deal, it is expected
to be accretive to Nasdaq's earnings within the first year, also
adding to its fixed- income product portfolio.
The latest purchase consideration is another step to fortify
its market position by diversifying into investment services. In
Dec 2012, Nasdaq had agreed to acquire the corporate management
arm of Thomson Reuters for $390 million. Subject to regulatory
approvals, this deal is expected to close by June this year.
The acquisition of BGC further reflects Nasdaq's growth
strategy of accelerating its non-transaction revenue base, which
already represents over 70% of the company's total revenue.
Alongside, the company seeks to generate growth through inorganic
expansion as well as counter the competitive forces and inject
dynamism to its business profile.
Over the past few quarters, revenue from equity and derivative
trading have been marred by declining volumes amid the market
volatility as well as unfavorable currency and interest rate
fluctuations. Hence, the decision to boost its technology and
data revenue across the globe should likely help Nasdaq witness
positive results in the future.
Moody's Wary of Nasdaq's Acquisitions
However, Moody's Investors Service of
) is concerned over Nasdaq's debt of over $1.0 billion from the
acquisitions of BCG and a unit of Thomson Reuters. While the
ratings agency is scrutinizing Nasdaq's capital adequacy and
financial strength, a downgrade is likely possible from the
current "Baa3" ratings on the company's bonds, given the
consistently deteriorating trend in Nasdaq's financial leverage.
Yet, management expects to improve the company's leverage
Another reason for concern stems from the fact that the US
Treasury bonds are trading at their recurring lows as the Federal
Reserve is buying back a chunk of these bonds under the latest
quantitative easing (QE) program. This has also resulted in low
rates, which are expected to continue at least for another year,
and hence, resulting in low trading activity of such bonds.
Therefore, we currently remain on the sidelines to view the
future of these acquisitions.
While Nasdaq and BGC carry a Zacks Rank #3 (Hold), Moody's and
Euronet Worlwide Inc.
) hold a Zacks Rank #1 (Strong Buy).
BGC PARTNRS INC (BGCP): Free Stock Analysis
EURONET WORLDWD (EEFT): Free Stock Analysis
MOODYS CORP (MCO): Free Stock Analysis Report
NASDAQ OMX GRP (NDAQ): Free Stock Analysis
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