Deutsche Boerse can bide its time with NYSE bid: analysts

5th April 2011, Comments 0 comments

German market operator Deutsche Boerse could stand by its offer for the New York Stock Exchange and hope a rival bid by Nasdaq OMX falls apart owing to heavy debt and other risks, analysts say.

The cash-and-share offer by Nasdaq OMX announced on Friday for NYSE Euronext represents a premium of about 19 percent over one from Deutsche Boerse, at $11.3 billion.

But the head of the German operator, Reto Francioni has not indicated that he will up the ante.

"We will not get involved in a bidding war," a source close to the Deutsche Boerse boss told the German daily Die Welt.

Christian Muschick at the German investment bank Silvia Quandt said: "We expect Deutsche Boerse to stick to a 'take it or leave it' approach."

That could be a winning strategy if faults in the all-American Nasdaq/NYSE plan widen under the pressure of Nasdaq OMX's heavy debt.

The second biggest US market operator already has debt of $2.3 billion, almost three times its 2010 core operating profit.

And since one third of its offer is in cash, Nasdaq would have to borrow more, not to mention the fact it would have to take on debt held by NYSE Euronext, which would bring the total to $6.5 billion.

That has prompted international ratings agencies Standard and Poor's and Moody's to voice doubt about Nasdaq OMX's solvency in the event it manages to snag NYSE Euronext.

The amount of expected savings is also open to question, analysts said.

Nasdaq and its ally ICE have estimated annual savings of $740 million after three years, far more than the 300 million euros ($425 million) mooted by Deutsche Boerse from its own offer.

"These cost synergies are incredibly high, and are very provisional figures, almost shots in the dark," LBBW analyst Martin Peter told AFP.

Meeting such cost savings would imply "losts of unemployment" on Wall Street, which could hamper a deal, he added.

A massive US stock market entity could also be nipped in the bud by competition watchdogs owing to a quasi monopoly on US stock transactions.

If such concerns caused the value of Nasdaq's own shares to fall, "its offer would lose some of its lustre for NYSE Euronext shareholders," since most of the offer is based on equity, said Andreas Plaesier at the M.M. Warburg bank.

The cash component is "certainly very interesting" on the other hand but shareholders should consider the long-term aspects, he added.

Deutsche Boerse insists meanwhile that its plan represents "the best possible combination" for investors on both sides of a deal.

But that project is subject to scrutiny by competition authorities as well because it would combine dominant positions from both sides, especially in derivatives trading.

And success "is not only a question of size,"noted Martin Peter at LBBW.

He suggested that Deutsche Boerse would do better to create alliances with alternative trading platforms that offer lower transaction charges and have been nibbling away at the big guy's market shares.

© 2011 AFP

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