NYSE Euronext (
) has once again rejected a combined bid of $11.2 billion by Nasdaq
OMX Group (
) and IntercontinentalExchange (
). 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
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
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.