The transnational merger is on the agenda again. Approximately one month after the announcement of the merger between NYSE Euronext and Deutsche Börse, Nasdaq OMX with the Intercontinental Exchange (ICE) has taken the action to takeover NYSE.
The diary of a merger
February 2011: Announcement of the merger between NYSE Euronext and Deutsche Börse. Debate on risks associated with the takeover of an American prestige object by a foreign company.
March 2011: Announcement that Nasdaq OMX and ICE make a superior offer to takeover NYSE Euronext.
April 10, 2011: The CEO of NYSE, Duncan Niederauer, rejected the offer.
April 28, 2011: Annual meeting of the NYSE: The offer will be voted by shareholders.
May 2011: Coming soon …
NYSE is the main rival of the Nasdaq. Through a takeover, Nasdaq will be the biggest stock market with a 50 percent share in the United States. On the other hand, Atlanta-based ICE specializes in energy and commodities trading and plans to expand through buying the derivatives operations of NYSE Liffe which runs the futures and options markets in Europe.
The strategy of the Nasdaq and ICE is impressive. Taking the advantage of the debate on national status and American power, they offer two main benefits to the public as well as to the shareholders: emotional satisfaction and financial prosperity.
Considering the personal conflict between Duncan Niederauer, the NYSE Euronext CEO, and Robert Greifeld, Nasdaq-OMX CEO, it is obvious that Niederauer would not sell his corporation to a rival.
Probably, the board will support his decision. Therefore, wining the shareholders of the NYSE for Nasdaq’s side would be the only way to acquire the company. At this point, because Deutsche Börse is in the game, Nasdaq/ICE can play the national sovereignty card.
The debate on national pride and lost of a national symbol has already caused formidable opposition against the deal with the Deutsche Börse.
The skepticism toward the deal in public opinion has been increased through news from other countries.
For example, the Australian government rejected the planned merger between the Australian Securities Exchange and the Singapore Exchange because of national reasons.
Based on this instance, the American press has argued that Nasdaq’s offer is a solution to solve the risk of giving away an American corporation, NYSE, to a foreign company. Moreover, a strong and big U.S. dominant stock exchange is preferred by the public.
In addition to the emotional platform, Nasdaq/ICE is trying to capture the shareholders of NYSE with their superior financial offer.
While Deutsche Börse accepted to pay $10.2 billion, the bid of the Nasdaq/ICE was $11.3 billion in cash and stock. In case of a takeover, NYSE shareholders would receive $14.24 in cash in addition to a 0.4069 share of a Nasdaq stock.
However, the merger between NYSE and Deutsche Börse offers that each share of NYSE Euronext stock would be exchanged for 0.47 share of the combined company’s stock. Furthermore, Nasdaq and ICE predicted $740 million in cost savings, compared to $530 million by Deutsche Börse proposal.
The picture of the Nasdaq/ICE offer seems perfect. Thanks to a takeover, NYSE, an American symbol and a national proud would be saved from a foreign company.
In addition to this emotional benefit, the shareholders would earn more than they do in case of the Deutsche Börse merger.
However, like a coin, everything has two sides. The right conclusion can only be reached, when examining possible disadvantages too.
The most important risk is the increase of the unemployment rate in the financial services industry. The proposed cost savings about $740 million and combining all U.S. stock listings under one roof would cause cutting jobs in the U.S.
Even American politicians who don’t agree with the German deal fear for more job losses after a takeover compared to a merger.
Second, Nasdaq’s resulting debt could cause trouble for the new corporation. Bank of America and Wells Fargo will provide about $3.8 billion to realize the deal. The downgrading of the Nasdaq’s credit rating by both Standard & Poor’s and Moody’s is highly possible, if Nasdaq proceeds with the bid.
Finally, an inner American deal could run into trouble in terms of establishing a monopoly in the U.S. stock market and thus face the sanction of the antitrust law. Current market share of NYSE is 28 percent and Nasdaq has 22 percent market share. The combination of both corporations would create 50 percent market share in the US.
Bringing the risks of a possible Nasdaq/ICE takeover to forefront, the NYSE board rejected the offer.
The offer proposes splitting up NYSE Euronext into two main businesses: derivative unit as well as an equity unit and a listings business. Niederauer criticized the proposal of the new offer because it doesn’t consistent with his corporation strategy and preferred the deal with Germans.
While the negative sides of a possible takeover are mentioned in the context of the rejection statement, the decision is based on a positive assumption for the merger with Deutsche Börse.
The NYSE board demonstrated that the merger between NYSE and Deutsche Börse would create a trans-Atlantic powerhouse in stock, options and derivatives trading.
Moreover, Deutsche Börse offers more growth opportunities, geographic distributions and assets than Nasdaq does. Nasdaq/ICE offers short-term revenue, but the offer is related to high risks in the long term, whereas the deal with the Deutsche Börse would contribute more to the corporation in the long run.
The visible side of the coin includes attractive and harmonic claims about interests of the shareholders and of the corporation. However, self-interest of the management level stands on the other side of the coin.
The takeover of NYSE by Nasdaq means that the current CEO and his management team would probably receive no support by the new owner.
On the contrary, Niederauer would hold his job position as a CEO after the merger with Deutsche Börse in addition of gaining financial benefits because of the merger. Moreover, Reto Francioni, CEO of the Deutsche Börse, is ready for giving the operative management, the responsibility for the stock trading and the development of the electronic trade system to the American side.
The picture shows that the advantage of the financial offer of Nasdaq/ICE is diminished by the benefits of a merger with Deutsche Börse for the management team of NYSE.
The shareholders’ votes will define the future of Mr. Niederauer and his board members. Therefore, the NYSE shareholders actually will vote on the current management. Will they decide on keep going with the current management style? Or will they prefer the new managers of Nasdaq and ICE?
The viewpoint of the German side
The German press announced the attack of the Nasdaq/ICE under the following new titles: “Nasdaq wants to torpedo mega stock exchange marriage”, “Nasdaq wants to overtrump Deutsche Börse”, “Nasdaq wants to outmaneuver Deutsche Börse”, “The Americans are against a German merger”. The arrows of the critique were aimed at Nasdaq and surprisingly not at ICE.
The German press kept up its clarion calls until the CEO of NYSE made a statement that implied the rejection of the Nasdaq/ICE offer.
Germans took a deep breath and celebrated the victory against the Nasdaq with the following column title: “New York Stock Exchange is remaining loyal to the Deutsche Börse”, “NYSE snubbed Nasdaq”, “Nasdaq wanted NYSE, but not to be permitted: Deutsche Börse is preferred”.
The deal between NYSE and Deutsche Börse is more than a simple business transaction for the Germans. It brings prestige as well as financial benefits. Because they are so close to their business dream for a third time since 2008, missing this objective would be a bitter and disappointing experience.
On the other hand, the cancel of the merger deal would cause a loss of a big competitive advantage
First, certainly, the merger would create a big synergy and open the doors of a big international market for Deutsche Börse. Second, the takeover of the NYSE Liffe by Atlanta based ICE would create a big competitive pressure in the derivative stock market in which Deutsche Börse currently has a domination in the European market.
However, despite the advantage of a merger with NYSE, the action of the Nasdaq/ICE has increased the hesitation about the deal on the German side.
Some people argued that the CEO of the Deutsche Börse would make concessions through increasing either the deal amount or intangible rights for the American side without remuneration. Based on this assumption, leaving the NYSE on its own way and cashing contractual penalty about €250 million which NYSE must pay the Deutsche Börse in the case of the deal break are much better and profitable for the Deutsche Börse.
Despite the rejection of the offer by the board of the NYSE, Nasdaq and ICE have not given up and are trying to convince the shareholders of the NYSE. If the shareholders would vote for the takeover, the merger with the Deutsche Börse will be canceled and NYSE will be acquired by Nasdaq/ICE.
It is not a hazard that the offer has been made before the annual meeting of the NYSE on April 28th. Moreover, it is not surprising or not unexpected that the board of the NYSE rejected the offer of the Nasdaq/ICE. Actually, the offer has targeted not toward the board but toward the shareholders…
The shareholders are faced with a hard decision. They have a big impact on the future of the US stock exchange. Their votes will be an answer to each following bullets.
· National borders or globalization and multiple cultures?
· The current CEO, Mr. Niederauer, and his team or a new management?
· Loyalty or desire to the newness?
· Short term revenue or long term goals?
Dr. Ilke Kardes is a visiting scholar at Georgia State University's Center for International Business Education and Research, which is located at the J. Mack Robinson College of Business. She is Turkish and earned a master's of science degree and a doctorate in marketing. Her education and academic experience as a lecturer have been at the German business program of Marmara University in Istanbul, Turkey. She is fluent in German in addition to English. She may be reached by calling Yiandria Boswell at (404) 413-7287 or send an email to firstname.lastname@example.org