George Washington was also aided by ice as he famously crossed the Delaware River to rout the British in 1776. This time America’s Nasdaq OMX has patriot IntercontinentalExchange (ICE) by its side as it hopes to see off another nasty foreigner. Certainly Nasdaq and ICE’s attack shows Washington-style gusto. Its cash and share offer for NYSE Euronext is a fifth higher than that implied by the so-called merger with Deutsche Börse and a 27 per cent premium to the target’s undisturbed price.
Like Washington’s advance, the Nasdaq bid appears strategically bonkers compared with the Deutsche Börse deal. The latter has the potential for genuine size and geographic breadth. More importantly, NYSE shareholders would suddenly become all-powerful in high-margin derivatives, with a combined 37 per cent of revenues coming from derivatives and clearing. By acquiring NYSE, in contrast, Nasdaq doubles down in highly competitive cash equities trading and would emerge with only a combined 13 per cent of revenues from derivatives.
As industry consolidation continued, Nasdaq had to do something or risk being a footnote in exchange history. On its side are an expected $610m of total annual cost synergies and a better track record than Deutsche Börse in delivering them. Taxed and capitalised, that equates to an equity value of 1.5 times the size of the premium Nasdaq and ICE are offering above the undisturbed equity capitalisation of NYSE.