NYSE and Deutsche Borse Sweetening the Pot?

April 14, 2011

I haven’t spent too much time on the drama surrounding NASDAQ’s bid of NYSE Euronext (which would effectively consolidate the U.S. based markets).  Basically, NASDAQ is bidding to try and woo NYSE away from the Deutsche Borse, a German exchange.

In order to keep its deal together with Deutsche Borse, NYSE has been exploring alternatives to give its shareholders extra incentive not to vote down the deal.

The deals are different in that the NYSE/DB deal is a stock for stock transaction where shareholders can continue to participate in the company versus NASDAQ’s all cash bid where shareholders would be cashed out.  All things being equal, a stock transaction is better for shareholders because they can capture  the company’s long term potential (an secure a control premium).

Here, however, NASDAQ is offering $2 billion more for NYSE.  So the NYSE board has a choice, continue with its current deal, or exercise a “fiduciary out” provision and take the NASDAQ deal.  This is a classic Revlon situation where the board is put in the position to make a decision as to which deal is better for shareholders.  Surely, litigation over this merger from shareholders and/or NASDAQ (as a shareholder) will follow.

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