What’s Behind the Fight Over the New York Stock Exchange

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More IPOs are coming from China (Lucas Jackson/Reuters)

Ever since the New York Stock Exchange’s parent the NYSE Euronext agreed to be purchased by Germany’s largest exchange, the Deutsche Borse, there has been some wrangling over whether someone should stop the U.S.’s most important stock exchange from falling in the hands of foreigners. Right after the merger was announced New York Senator Charles Schumer made some noise about trying to block it, but then just settled on the symbolic demand that the combined entity have the NYSE in its name.

The most serious bid to keep the NYSE “in country” has come from U.S. rival Nasdaq. It’s leading an offer along with partner Intercontinental Exchange, which trades options and other derivatives, to buy the NYSE and split it up. On Tuesday, the Nasdaq and the ICE sweetened their offer by saying they would pay the NYSE a $350 million break up fee if the deal, once started, didn’t work out. That’s on top of the $11.3 billion price tag they have already offered the NYSE if the deal does work out.

So far, NYSE executives say they aren’t interested. The question is how long they can hold on. The NYSE execs are sticking with a considerably lower priced offer of $9.7 billion from the Deutsche Borse. And it doesn’t look likely the NYSE execs will move on the latest offer either. In the past, they have said they are looking for a $1 billion break-up fee, which is essentially saying we’re not interested at any price. Robert Greifeld, Nasdaq’s CEO, said shareholders should decide. Higher immediate payouts do tend to sway stock holders. But going for Nasdaq’s bid might actually end up being the worse deal. Here’s why:

The fight over NYSE has to do with a dearth of new listings. Nasdaq’s solution is to upgrade technology and create a larger U.S. exchange. But NYSE needs to shift its focus from New York to Beijing and elsewhere. And the NYSE-Deutsche Borse deal would do that. NYSE and Deutsche Borse officials have said that a main reason for doing the deal is that a cross-continent exchange would attract companies from around the world, particularly in Asia. That’s important.

According to a recent NBER study, the U.S. is being left behind in the market for initial public offerings. In 1990, 27% of the world’s initial public offerings came from the U.S. Last year that percentage was 9%, and China’s share had leaped to 32%, according to Dealogic. The trend, as they say on Wall Street, is your friend.