NASDAQ OMX Group Inc.
) announced its intention to purchase the corporate management
arm of Thomson Reuters. The deal is valued at $390 million and is
expected to culminate by the first half of 2013, subject to
Accordingly, NASDAQ has agreed to obtain the Public Relations,
Investor Relations and Multimedia Solutions businesses of Thomson
Reuters. The company plans to fund the transaction mostly by cash
and the remaining from its revolving credit facility.
Additionally, NASDAQ sought the advice of BofA Merrill Lynch
Bank of America Corp.
Barclays Capital Plc
), while Thomson Reuters was advised by
JPMorgan Chase & Co.
The deal complements the growth strategies of both the
parties. Through this, NASDAQ further aims to accelerate its
non-transaction revenue base, which already represents over 70%
of the company's total revenue. Alongside, the company seeks to
generate growth through international expansion as well as
through escalation in technology and data revenue.
Over the past few quarters, revenue from equity and derivative
trading have been marred by volumes declines amid the market
volatility as well as unfavorable currency and interest rate
fluctuations. Hence, the decision to boost its corporate
management solutions with an additional client base of over 7,000
in more than 60 countries across the globe will likely help
NASDAQ witness positive results in the future.
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 indicates over 3x of revenue
boost, accounting for more than 7% of total revenue for the
company at present.
On the other hand, Thomson Reuters has been restructuring its
business to focus on and expand its core business, in an attempt
to nullify the adversities led by the ongoing economic volatility
and financial crisis, which resulted in many of its banking
clients opting for layoffs to reduce costs. Moreover, its
corporate solutions division accounts for only 2% of total
revenue, all of which justifies the company's decision of
Overall, we believe that NASDAQ's inorganic expansion
initiatives are endeavors to counter the competitive forces and
inject dynamism to its business profile. The company's strategic
efforts to enhance fraying market position are also crucial given
the challenges posed by the recent reforms in the US. This leaves
no reason for NASDAQ to lag the market moves.
Earlier this week, the company also announced the acquisition
of 25% stake in Amsterdam-based The Order Machine (TOM) - Dutch
cash equity and equity derivatives trading platform.
Additionally, NASDAQ is scheduled tobuild a new interest rate
derivative trading platform - NASDAQ NLX - in London.
Nevertheless, we cast a neutral outlook on the company's
attempts to expand and integrate the recent acquisitions given
the global economic volatility, and currently remain on the
periphery to assimilate the future developments.
NASDAQ carries a Zacks Rank #3 that implies a short-term Hold
rating, while the long-term recommendation stands at Neutral.
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