Zacks Analyst Blog Highlights: NASDAQ OMX, NYSE Euronext, IntercontinentalExchange, CBOE Holdings and CME Group

CHICAGO, Feb. 24, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: NASDAQ OMX Inc. (Nasdaq: NDAQ), NYSE Euronext Inc. (NYSE: NYX), IntercontinentalExchange Inc. (NYSE: ICE), CBOE Holdings Inc. (Nasdaq: CBOE) and CME Group Inc. (NYSE: CME).

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Here are highlights from Wednesday's Analyst Blog:

NASDAQ Looking to Merge

Given the flurry of merger and acquisition (M&A) activity in the industry, NASDAQ OMX Inc. (Nasdaq: NDAQ) is reportedly hunting for a partner to bid against NYSE Euronext Inc. (NYSE: NYX) who has agreed to combine with Deutsche Boerse in a $10 billion deal, last week. NASDAQ is also weighing other options of acquisitions or itself be acquired.

Yesterday, Reuters and the Wall Street Journal reported that the NYSE deal with the Deutsche Boerse has been ground-breaking for NASDAQ, who is now desperately trying to retain its market value and strength in the industry.

NASDAQ fears that the culmination of NYSE-Deutsche Boerse deal will diminish the former's size and global footprint. The prospective deal's combined exchanges and clearing houses would generate an annual €4.0 billion ($5.5 billion) in revenues, more than any other exchange group.

Additionally, this would out beat all the exchange operators with the largest derivative business, representing 37% of net revenue against NASDAQ's 17% of net revenue as reported in 2010.

Hence, NASDAQ is seeking a partner to put forth a strong bid for NYSE and reports revealed that IntercontinentalExchange Inc. (NYSE: ICE) has shown some interest in taking over the expansive derivative business of NYSE, while NASDAQ could take care of the cash equities business.

However, a counter-bid in the NYSE-Deutsche Boerse deal appears to be petite since the agreement of the deal includes a $337 million break-up fee in case the deal is spoiled by a new bidder and tax issues, among others.

Moreover, it is not possible for NASDAQ or ICE to buy NYSE individually and a lot of hurdles await the possibility of making a deal happen even if the companies bid jointly for NYSE.

Simultaneously, NASDAQ is mulling other options that include acquisition of the London Stock Exchange (LSE) or CBOE Holdings Inc. (Nasdaq: CBOE), while also considering itself to be sold to the any of the two largest US exchange operators after NYSE, namely ICE and CME Group Inc. (NYSE: CME). However, none of them have shown interest in buying NASDAQ. It is believed though a watchful wait for some more quarters could help NASDAQ with a better choice of growth strategy.

Recently, the stock exchange industry has picked up pace with the changing market needs and consequently become a hub for M&A activities last week. While LSE is on its way to complete a merger with Toronto Stock Exchange owner TMX Group, the NYSE-Deutsche deal is undergoing rigorous sessions of investigations by regulatory authorities and is expected to take about a year's time.

The proposed German-US merger would also create the dominant derivatives exchange in Europe by merging Liffe – NYSE Euronext's futures and options exchange – with Deutsche Boerse's Eurex platform.

Even the next biggest operator, CME in the US, with €2.3 billion in revenues and holding 98% market share of the US futures trading, would lag far behind the NYSE-Deutsche Boerse combination. The greatest competitive threat here rises for NASDAQ, most of whose derivatives revenue comes from stock options, as opposed to the more-lucrative futures business.

Also, BATS, one of the most successful American stock exchanges, completed its deal to buy Chi-X Europe to bolster its Europe presence last week. In October 2010, Singapore Exchange had agreed to buy Australia's ASX.

Meanwhile CBOE, which runs the Chicago Board Options Exchange, and significant international market operators, like the BM&F Bovespa in Brazil, is also exploring potential M&A options. CME is also weighing options around the corner on similar grounds.

However, we believe that uncertainty prevails over most of the exchange operator's future course of action and the sudden business restructuring in the stock exchange industry reflects the rapid need to respond to the changing dynamics of modern finance.

These are primarily driven by the increased demand for greater international services and intense competition, which have led the traditional exchange companies to seek ways to gain scale and services.

NASDAQ will also have to comply with these changing requirements and the act of mulling over options before its too late, is appreciable and crucial for the company. Aligning with this growth strategy, yesterday, NASDAQ announced its partnership with Singapore Exchange to be offer a comprehensive suite of tools and solutions designed to enhance corporate activities for listed companies in Asia, starting with Southeast Asia and India.

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