NYSE May Go Up For Auction If Split Is Pushed -Analyst

NYSE Euronext (NYX) could wind up on the auction block if its shareholders decide that splitting up the company could bring the best value for their investment, according to a sector analyst.

Should stakeholders in NYSE Euronext opt to seek a higher price for the exchange company than the $10.2 billion represented by an agreed merger deal with Deutsche Boerse AG (DB1.XE), it is likely that the company's board would push to sell its trading, technology and listings divisions to the highest bidder rather than embrace an unsolicited offer from IntercontinentalExchange Inc. (ICE) and Nasdaq OMX Group Inc. (NDAQ), according to a Wednesday report from Raymond James.

While the plan to merge NYSE Euronext and Deutsche Boerse remains the most likely outcome, "[i]f push comes to shove, NYSE would likely hold an auction process," wrote Raymond James analyst Patrick O'Shaughnessy.

Such a scenario would open the door to potential bids for parts of the Big Board operator from nearly every major exchange company, including Chicago-based derivatives leaders CME Group Inc. (CME) and CBOE Holdings Inc. (CBOE) and Asian operators such as Singapore Exchange Ltd. (S68.SG), as well as Nasdaq and ICE.

The global industry of handling investors' trading in stocks and derivatives has been thrown into flux over the last 10 days, with Nasdaq OMX and ICE seeking to spoil the NYSE-Deutsche Boerse deal and Australia's government blocking local exchange group ASX Ltd.'s (ASX.AU) planned combination with Singapore Exchange--which has cast doubt on the prospects for London Stock Exchange Group PLC (LSE.LN) to merge with Canada's TMX Group (X.T).

ICE and Nasdaq's takeover proposal for NYSE Euronext hinges on carving up the business, with its futures unit going to ICE and Nasdaq taking the equities and technology pieces. NYSE's board rebutted the overture Sunday, opting to stick to the Deutsche Boerse plan and raising concerns from some shareholders fixated on an implied $1.6 billion premium offered in the rival bid.

If the Deutsche Boerse combination falls through and shareholders continue to press for some sale of the company, "it is highly probable, in our opinion, that an auction process would extract more shareholder value than the proposed offer by Nasdaq/ICE," O'Shaughnessy wrote.

"An auction process might hypothetically see the CME Group bidding against ICE and Deutsche Borse for the NYSE Liffe franchise, the London Stock Exchange and the Singapore Exchange bidding against Nasdaq for the equities business, and CBOE bidding against Nasdaq for the options business," he wrote.

Another possibility: SGX could bid for Nasdaq OMX, with newfound financial flexibility after SGX's deal for ASX was blocked, according to O'Shaughnessy.

ICE and Nasdaq OMX could still make their offer harder to dismiss by offering a breakup fee that tops the EUR250 million agreed between NYSE Euronext and Deutsche Boerse, O'Shaughnessy wrote, which also could go some way toward easing investor concerns that U.S. regulators may balk at combining nearly 100% of domestic share listings under one company.

But this venue could be limited by Nasdaq OMX's already heavy debt load, he said, which has made it more likely that the company's credit rating would fall below investment grade if its quest to buy the NYSE is successful. Nasdaq OMX Chief Executive Bob Greifeld has vowed to keep the rating above junk status.

Beyond making the deal potentially more expensive for Nasdaq OMX, "another negative impact would be on the firm's brand, as it would reflect poorly for the sole major listings venue in the U.S. to have its debt be junk-rated," O'Shaughnessy wrote.

-By Jacob Bunge, Dow Jones Newswires; 312-750-4117; jacob.bunge@dowjones.com

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