NASDAQ And CME Group Show Diverging Views On Going Private

February 19th, 2013 by Trefis Team
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Recently, private equity firm Carlyle group announced that it was in talks with NASDAQ OMX (NASDAQ:NDAQ) to take the exchange operator private. Negotiations could not proceed further as an agreeable price could not be reached. NASDAQ has also been reported to be in talks with Hellman and Friedman for a similar deal in the past few months.

A day after it was revealed that NASDAQ had considered going private, CME Group’s (NASDAQ:CME) CEO expressed his discomfort at taking his company private. Speaking at a Credit Suisse conference in Miami, Phupinder Gill, the new CEO of CME, suggested that taking the firm private would not relieve the exchange from regulatory scrutiny of agencies like the CFTC and, in the absence of this benefit, he sees no advantage in going private.

We believe that the same argument applies to NASDAQ as well. The acquisition by a private party will not reduce any regulatory burden on the firm. Further, the business remains unchanged fundamentally if the business were to be taken private and there would be limited areas of increasing productivity as NASDAQ is already one of the leanest exchange operators – relying more on technology and efficiency than any other major peer.

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See our full analysis for Nasdaq OMX| NYSE Euronext|CME Group

Further, regulators – especially European agencies – might not be very comfortable with a single investor controlling exchanges, which are systemically important entities. Further, a leveraged buyout of the firm would increase counter-party risk for investors who deal with the exchange and make it even more unlikely for regulators to approve the deal.

Even though NASDAQ’s management has been known to be frustrated with the firm’s valuation, we believe that the firm is almost fairly valued at the moment with the market pricing the stock at $31, almost 70 cents above Trefis’ estimate.

Note: Last reported by the New York Post, the Carlyle group still seems to be in talks with NASDAQ about the $7 billion takeover. [1]

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Notes:
  1. Carlyle still pursuing Nasdaq buyout, New York Post, February 12, 2013 [↩]