Monday, 15 August 2011

The War of Exchanges

The last few months have seen a lot of activity in the exchanges segment with more than $30 billion been spent on exchange takeovers. As the exchanges are looking at merger and acquisitions to increase their geographic presence or to acquire greater market share, there has been a mini battle and it would be interesting to see who would emerge as winners in the end.

The first clash making the headlines over the last few months was for the takeover of NYSE. With Deutsche Bourse on one side and NASDAQ OMX and InterContinental Exchange (ICE) on the other, the clash final ended on May 16, 2011 when NASDAQ and ICE dropped their $11.3 billion bid to acquire NYSE. The reason for the move out was the threat from the U.S. regulators to block the deal as the Justice Department cited reasons about the potential for monopolies in stock listings, data services and some areas of trading. The outcome is that if Deutsche Bourse’s offer of $10.2 billion wins regulatory and share holder approval in Europe and United States then it is well set to be the largest exchange in the world.

The fall out of the NYSE deal for NASDAQ OMX has opened other doors. A lot of speculation has aroused that NASDAQ OMX would go ahead to buyout the London Stock Exchange. This clash is not new to us as in 2007 LSE had rejected NASDAQ OMX’s hostile bid for a takeover. However this time the hopes are higher, due to which there was a growth of 6.8% in the London Stock Exchange Group Plc shares after the news of the fall out of the NYSE deal hit the market. Considering the present share prices of LSE compared to in 2007, it is estimated that buying LSE would be cheaper by $1.4 billion for NASDAQ as compared to their offer made in 2007.

Earlier this year on Feb 9, LSE agreed to buy Toronto Stock Exchange for about $3.1 billion. A day before NASDAQ OMX withdrew its bid, a consortium of Canadian financial institutions (made up of four Canadian Banks and five pension funds) announced a hostile bid of $3.7 billion for the TMX Group to keep the country’s main stock exchange under Canadian ownership. Now, if LSE fails to complete the TMX deal it could be vulnerable to a predator like NASDAQ OMX.

Late last year in October, Singapore Exchange Ltd. had bid A$8.35 million for Australian Stock Exchange, however this deal was rejected by the Australian government last month. It would be interesting to see whether exchanges like TMX, AMX are able to avoid takeovers as they do not want to be governed by other countries exchanges

There is surely a lot more which can be expected to happen in this segment in the near future as exchanges with huge purses try to grow bigger. Probably, the War has just begun………..

By, Ayush Rungta (PGDM-12)