Exchanges Fall From Investors' Grace [WSJ]
By EDWARD TAYLOR and ALISTAIR MACDONALD
May 26, 2006; Page C3
How the consolidation of the world's financial exchanges will play out remains anyone's guess, but investors already have come to one conclusion: This isn't quite the ride they were hoping for.
The stock prices of many exchange operators rose in anticipation of bidding wars breaking out as the industry's major exchanges seek to create global powerhouses. But in the past couple of weeks, as the contours of the possible consolidation have emerged, investors have bailed en masse.
Shares in Deutsche Börse AG, the German stock-market operator; NYSE Group Inc., owner of the New York Stock Exchange; and Nasdaq Stock Market Inc. have tumbled about 17% since May 15. Shares in Euronext NV, the European exchange operator that is the target of competing offers from Deutsche Börse and NYSE, are off about 8% since midmonth. Euronext operates the Amsterdam, Lisbon, Paris and Brussels stock exchanges and a derivatives exchange in London.
Among the reasons prompting the stocks' retreat: The prices being offered by Euronext suitors don't offer a premium above the target company's market price, suggesting to investors the stock prices aren't going much higher. That has led some investors to sell their stocks to lock in profits. It also has discouraged other large investors from buying the stocks.
Euronext told a shareholder meeting in Amsterdam Tuesday that Deutsche Börse's offer, based on prices earlier this week, values Euronext at €58.73 ($75.05) a share, while the NYSE offer, which Euronext prefers, stands at €68.34 a share. The offer prices will continue to vary with market fluctuations.
In Amsterdam yesterday, Euronext shares fell €1.5, or 2.2%, to €66, down from above €70 in mid-May.
"Euronext has two proposals for a nil-premium change of control," Clara Furse, chief executive of London Stock Exchange Group PLC, said at a news conference yesterday. "So, clearly, that impacts the way the sector is perceived."
Shares in NYSE have dropped as investors assess the risks involved in a potential deal, and Deutsche Börse's share price has fallen, in part, because it looks likely to be the loser in the bidding for Euronext.
A report from the European Commission, suggesting the business model used by Deutsche Börse and some other European exchanges may restrict competition, hasn't helped the stock.
A spokeswoman for Deutsche Börse declined to comment on the report, saying the company was still reviewing the findings.
In Frankfurt yesterday, Deutsche Börse shares fell €2.42, or 2.4%, to €97.75. In 4 p.m. New York Stock Exchange composite trading yesterday, NYSE Group shares rose $4.40, or 7.8%, to $61.20.
Exchanges also have suffered along with the broader stock markets. Exchanges earn fees from trading and new stock listings, two businesses that can slow when stocks are doing poorly.
Also, as investors become more concerned about economic growth and the prospects of inflation, they look to reduce risks. That means stocks that had been trading at high values -- like exchanges -- are bound to suffer, said Leigh Harrison, head of United Kingdom retail funds at Threadneedle Asset Management Ltd., a money manager that until April had been the largest shareholder of LSE.
LSE shares have fallen recently, too, after a rise in the past year. The operator of Europe's largest exchange by total market value of its listed stocks had been approached by multiple potential buyers, driving up its stock price.
But after it rebuffed a proposal from Nasdaq, that U.S. suitor purchased a stake in LSE of about 25%, making it difficult for another suitor to make a run at LSE.
In London yesterday, LSE shares fell 9.3%, or 110 pence, to £10.79 ($20.21), down from £12.63 in mid-May. |
