The global exchange consolidation race is heating up. NASDAQ has inched a bit closer to making a bid for the New York Stock Exchange, which, if approved, would make the two rival exchanges one massive conglomerate.
The Wall Street Journal reports that NASDAQ is in talks with Bank of America, as well as IntercontinentalExchange, to set up financing that would include new debt of nearly $5 bn and the purchase of the parts of NYSE Euronext (NYSE’s parent company) that NASDAQ can’t afford on its own.
A bid combining NASDAQ and NYSE would serve as direct competition for the proposed merger between NYSE Euronext and Germany’s Deutsche Börse. Should the NASDAQ-NYSE deal go through, NASDAQ would become the dominant trader of US-listed stocks.
Reports say NASDAQ has moved quickly in the past few days, lining up the required components for a solid bid, including tapping four banks for financing and talking with Middle East investors for additional funding.
The proposal gets a little complicated, though, if approved. If it went through, NASDAQ would bear the risk as the lead bidder and could be responsible for a $350 mn break-up fee associated with the NYSE-Deutsche Börse proposal. In addition, approval of the NASDAQ-NYSE deal could mean a ratings slam for NASDAQ, which is already one of the most indebted exchange companies. Standard & Poor’s warned in December it could lower NASDAQ’s debt rating if the company does ‘cash acquisitions of large capital-intensive companies’.
To add insult to ratings injury, if the NASDAQ-NYSE deal goes through it could mean the loss of hundreds of jobs as the two companies form one business. While these savings could leverage NASDAQ’s bid over Deutsche Börse’s offer, they might not sit well with US politicians who have been trying to preserve jobs.