DealBook: NYSE Euronext: A Fight About Cost Savings

The battle over NYSE Euronext may come down in part to a question of who can save more in a deal with the Big Board.

NYSE Euronext’s chief executive, Duncan Niederauer, told The Financial Times that his company had essentially understated the amount of cost savings in its proposed merger with Deutsche Börse by about 100 million euros. That puts the figure at “closer to” 400 million euros, or about $583 million.

In his interview, Mr. Niederauer said that the savings would come in part from combining NYSE Euronext’s derivatives clearing platform with Deutsche Börse’s, allowing customers to pay just once.

Hinted at for some time, the revised numbers are meant to push back against the more than $700 million in cost savings estimated by the Nasdaq OMX Group and the IntercontinentalExchange in their proposed takeover of NYSE Euronext.

That’s in part because there’s more overlap in the Nasdaq-ICE proposal, especially in combining Nasdaq with NYSE Euronext’s stock-trading business, which would be a merger of the nation’s two biggest stock market operators.

Unsurprisingly, Nasdaq and ICE are skeptical about NYSE Euronext’s new numbers. In a statement on Monday, they question how, after more than two years of due diligence, NYSE Euronext was suddenly able to find an additional 100 million euros of cost savings. They also questioned where the additional savings come from, since the combined NYSE Euronext and Deutsche Börse plan to maintain two headquarters and two technology platforms.

In a separate presentation (below), Nasdaq and ICE highlighted what they said were flaws in NYSE Euronext’s own merger history, including missing both expense reduction and revenue combination targets in the original combination of the New York Stock Exchange and Euronext. They also pointed to a $1.6 billion write-down that NYSE Euronext took in late 2008 to reflect the lower value of the merger.

Nasdaq’s chief executive, Robert Greifeld, has said that his mooted cost savings would come in large part from combining data centers and backoffice systems. But NYSE Euronext has fought back by saying that its merger with Deutsche Börse would create minimal job cuts in the United States, whereas the Nasdaq offer’s cost savings are built on widespread pink slips.

That argument appears to have gotten the ear of Senator Charles E. Schumer, Democrat of New York. In a letter to the chief executives of Nasdaq and ICE, Mr. Schumer demanded more information about what their deal would mean for New York City jobs.

According to estimates prepared for him by NYSE Euronext, the Nasdaq-ICE proposal would lead to more than 1,000 job cuts in the United States — and 800 in New York City.

Here’s the full text of the letter that Mr. Schumer sent to Nasdaq and ICE:

Robert Greifeld
Chief Executive Officer President
The NASDAQ OMX Group, Inc
One Liberty Plaza
165 Broadway
New York, NY 10006

Jeffrey Sprecher
Chairman Chief Executive Officer
IntercontinentalExchange, Inc.
2100 RiverEdge Parkway
Suite 500
Atlanta, GA 30328

Dear Mr. Greifeld and Mr. Sprecher,

I write you today regarding an area of critical importance to me with respect to your ongoing efforts to acquire NYSE Euronext. As we previously discussed, I am concerned with the potential impact a NASDAQ/ICE takeover of NYSE Euronext would have on jobs in and around New York City. This would be a major consideration in judging any potential transaction.

I understand that the NYSE Euronext board of directors has once again reaffirmed its support for the Deutsche Börse transaction, but I also understand that NASDAQ and ICE may further revise their proposal or take it directly to NYSE Euronext’s stockholders. Accordingly, I wanted to follow up on our previous conversation, during which I requested your best estimates of expected job losses in the New York City area that would result from a NASDAQ/ICE takeover of NYSE Euronext. By your own account, the business rationale for a NASDAQ/ICE transaction appears predicated largely on over $700 million in so-called “cost synergies”. That almost certainly means significant job losses. At my request, NYSE Euronext estimated that the NASDAQ/ICE proposal, if effectuated, would result in the loss of 1,000-1,100 U.S. jobs, including approximately 800 in the New York City area.

Prior to taking additional steps in your acquisition efforts, please provide me with your best estimate of how many jobs would be lost in the New York City area in the event of a NASDAQ/NYSE combination, and an explanation for how the claimed cost synergies would be achieved in light of your estimated level of job losses.

Please let me know if you have any questions or would like to discuss this further.

Sincerely,

Charles E. Schumer
United States Senator

Nasdaq and ICE presentation on NYSE Euronext deal cost savings

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