Duncan Niederauer

The future of the NYSE: A shareholder dilemma

April 13, 2011: 5:00 AM ET

The Nasdaq wants the NYSE, and the NYSE wants the Deutsche Bourse. This love triangle is going to get even more tangled before it sorts out.

By Cyrus Sanati, contributor

There seems to be little stopping the New York Stock Exchange in going ahead with its planned merger with Deutsche Bourse -- not even the promise of more money. The NYSE board's unequivocal rejection this week of an alternate ties up with the Nasdaq and the InterContinental Exchange has put a virtual "SOLD" sign on the exchange floor in downtown New York.

The only hope in blocking this merger now would have to come from the NYSE shareholders, who have just now started to raise concerns about the NYSE's intransigence on the matter.

NYSEIt seems like it would have been an easy sell. Rival exchanges Nasdaq and ICE came together to bid for the NYSE after the 219-year-old exchange agreed to be sold to Deutsche Bourse for $10 billion. The Nasdaq and ICE offered a hefty 19% premium. But the NYSE was not having it. It refused to open its books to the Nasdaq consortium and rejected its offer outright.

Under normal circumstances, the board would be forced to take the higher offer, evoking the board's so-called "Revlon duties," which require it to accept the highest bidder in any takeover fight. But the Deutsche Bourse deal has been structured in a way that makes it a merger as opposed to a sale. So even though the Deutsche Bourse would have a 60% controlling stake in the combined company, the deal has been classified as a "strategic merger of equals" and not a takeover. That means the board could reject the Nasdaq/ICE bid without requiring Deutsche Bourse to raise its offer.

The next logical step for the Nasdaq (NDAQ) group at this point would be to go hostile and try to get some friendly board members elected to the NYSE's board. It would run a slate of its own board members at the NYSE's (NYX) annual meeting and let the shareholders vote, raising the drama at what is usually a very routine meeting. But the Nasdaq missed the deadline to put up its own slate of directors at the annual meeting, which is scheduled for the end of this month. NYSE shareholders also lack the ability to call special meetings for board members. That means that the Nasdaq and ICE would have to wait until next year's annual meeting to try and oust some of the NYSE's board members -- way too late to make any difference. More

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