Business | Markets
Deal speculation hits NYSE Euronext stock
Shares of New York Stock Exchange operator NYSE Euronext have fallen 24 per cent since the beginning of the year, burdened by an eroding market share and investor concerns that an acquisition could depress earnings.
- Reuters
- Published: 00:00 August 5, 2007
NewYork : Shares of New York Stock Exchange operator NYSE Euronext have fallen 24 per cent since the beginning of the year, burdened by an eroding market share and investor concerns that an acquisition could depress earnings.
With most US exchanges now operating as for-profit public entities and the rise of alternative electronic trading venues, the Big Board has steadily lost market share to competitors like the Nasdaq Stock Market Inc.
NYSE Euronext, which reported earnings on Thursday, said its share of trading in stocks listed on its US exchanges fell to 64 per cent during the second quarter from 75 per cent a year earlier.
Analysts said that NYSE shares are suffering from heightened competition in stock trading, which brings in most of its revenues. The stock, which ended 2006 at $97.20, closed Friday's session at $73.96
"It was inevitable that NYSE's market share would fall," said Edward Ditmire, an analyst with Fox-Pitt, Kelton. "Their previous share was unsustainable in a competitive market."
Adding to pressure on the stock is a perception that NYSE Euronext's management is not doing enough to defend their turf in the US stock trading business.
NYSE Euronext stock has underperformed the KBW Capital Markets Index, which is down 2.9 per cent for the year, as well as rivals like Nasdaq, which is roughly flat.
"I would give (management) a lower score on defending their core markets and competing with Nasdaq, which is chipping away at their market share," said David Easthope, an analyst at financial research firm Celent.
Nearly two-thirds of NYSE Euronext's second-quarter profit came from the company's European stocks and higher-margin derivatives businesses, Easthope said. NYSE Group bought European exchange operator Euronext for $14.6 billion in April.
Acquiring a US derivatives exchange would allow NYSE Euronext to replicate the European model, Easthope said.
Investors worry
NYSE Euronext Chief Executive John Thain said in June his company was looking at making acquisitions to expand its US derivatives business.
Yet, speculation about NYSE Euronext striking a deal with a derivatives market like the New York Mercantile Exchange or the Intercontinental Exchange has itself pushed the stock down, as investors worry about the impact on earnings.
"With NYSE, the fact that they've said things in the past that made them sound like an M&A buyer have weighed on the stock," he added.
Several analysts have said Nymex Holdings Inc. or IntercontinentalExchange Inc, which trade options and futures in energy and commodities, would be likely takeover targets for NYSE Euronext.
"Both Nymex and ICE should be attractive to NYSE Euronext" because of their high growth potential, cost savings and revenue synergies, Deutsche Bank analyst Rob Rutschow wrote in a research note.
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