NYSE Again Rejects Nasdaq-ICE Bid

By Trefis Team,

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NYSE Euronext ( NYX ) has once again rejected a combined bid of $11.2 billion by Nasdaq OMX Group ( NDAQ ) and IntercontinentalExchange ( ICE ). The revised offer included a $350 million breakup fees that NYSE Euronext will receive if Nasdaq-ICE deal didn't go through because of the anti-trust issues and also a reimbursement for about $364 million that NYSE Euronext will have to pay Deutsche Boerse is their deal collapsed. Our price estimate for Nasdaq OMX is $25.87 , which is roughly 5% below the current market price.

According to the Chairman of NYSE Euronext, " This proposal does not provide compelling value, has unacceptable execution risk and is therefore not in the best interests of NYSE Euronext shareholders ."

In-spite of this, Nasdaq's CEO said that he would look for NYSE Euronext take over until next April if necessary.

The reason why Nasdaq is pushing so hard to acquire NYSE Euronext's stock listing and trading business is because it will provide huge cost savings for Nasdaq by eliminating dual technological infrastructure cost and reducing workforce. We wrote about this in a recent note titled Gains Ahead if Nasdaq's & ICE's Bid Wins NYSE .

In this note we wrote:

A rise in trading volume will significantly reduce costs for Nasdaq because it already has the technological infrastructure in place to carry out large trading volumes. Both ICE and Nasdaq have made acquisitions in the past and were able to cut operating expenses significantly. We estimate that Nasdaq's operating margin for its U.S. cash equity trading division could reach around 14% in 2011 from 10.3% in 2010 as IT cost savings and business synergies help improve its profitability.

In the chart above, you can modify our the existing estimates to see how the sensitivity of higher margins on Nasdaq's stock value. For example, U.S. cash equity trading EBITDA rose to 15%, this implies a 20% higher price estimate.

See our full analysis of Nasdaq OMX.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Stocks: ICE , NDAQ , NYX

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