The endgame in Nasdaq’s bid for NYSE Euronext has begun.

In the next few weeks, the Nasdaq OMX Group and its partner, the IntercontinentalExchange, as well as NYSE Euronext and Deutsche Börse, will each take their final steps to position themselves around the NYSE Euronext shareholder meeting on July 7. It is at that meeting that shareholders will vote on Deutsche Börse’s proposed acquisition NYSE Euronext. Here are some of the maneuvers to look for from each of the parties:

NYSE Euronext

NYSE Euronext, which operates the New York Stock Exchange, took its biggest step recently when it set the record date for shareholders who are eligible to vote on the transaction. This is a very important act because it locks in the shareholder base that NYSE Euronext must persuade to vote for this transaction. The record date is May 9 and was posted on NYSE Euronext’s data Web site, NYX Data, but it has yet to be publicly announced by NYSE Euronext in a press release.

The document for this vote that was filed with the Securities and Exchange Commission is largely complete except for the setting of the record date. In other words, NYSE Euronext had been holding off on setting this date and mailing the necessary documents for its shareholder meeting. This was likely for two reasons. First, no doubt NYSE Euronext and Deutsche Börse were looking to set the record date with the optimal precision of a space shuttle launch in order to make sure that all of the right shareholders are the ones who vote.

Second, waiting allowed NYSE Euronext to benefit from the rise of the euro against the dollar, which has closed the premium gap between the Deutsche Börse offer and the Nasdaq-ICE bid. Allowing this gap to close means that any sweetener that Deutsche Börse or NYSE Euronext announces can be calibrated with better precision since the shareholder base that will benefit from this act is now set. And that sweetener, if it is a dividend, will be announced most likely as an attempt to counter any raise by Nasdaq and ICE. So expect Nasdaq to act first here.

Nasdaq-ICE

Nasdaq and the IntercontinentalExchange need to create sufficient incentives for NYSE Euronext shareholders to spurn the bird in the hand — the Deutsche Börse deal — for their own transaction. The first tactic is obviously pay more. To the extent the premium gap between their bid and the Deutsche Börse one is closing because of macro-economic factors, Nasdaq and ICE will have to make it up. Expect another round of bidding now that the record date is set as Nasdaq and ICE also attempt to influence the NYSE Euronext shareholder base

If Nasdaq and ICE follows the form of other hostile bidders, they may or may not raise their offer in the next few weeks, but will almost certainly raise it just before the NYSE Euronext meeting and before Institutional Shareholder Services makes its recommendation. I.S.S. will not change its recommendation in the period five days before any meeting and that recommendation usually comes just before the start of this period. So a Nasdaq-ICE increase at that time would prevent I.S.S. from taking into account any NYSE Euronext response during that period.

Second, Nasdaq and ICE must show that their deal has sufficient certainty. Nasdaq and ICE will do this by highlighting that the NYSE Euronext-Deutsche Börse deal also has a second request for documents from the Justice Department. This heightened investigation will delay the closing of an aqcuisition of NYSE Euronext by Deutsche Börse. Nasdaq and ICE will argue that this puts both deals on the same timeline. But this is far from certain. The Deutsche Börse offer has far fewer antitrust issues and so the government’s examination of it is likely to be more truncated than the Justice Department’s scrutiny of a Nasdaq-NYSE tie-up.

Third, Nasdaq and ICE have announced that they will begin an offer for NYSE Euronext shares. While the announcement made the headlines, it is really a nothing event, in the sense that it does not change the playing field. Hostile bidders typically accompany hostile bids with a hostile offer. But these offers are typically filled with a number of conditions that make them meaningless unless the target willingly comes to the table for a deal. Here, NYSE Euronext has expressly said that it is not willing to speak.

The net effect of all of these efforts will be to persuade NYSE Euronext shareholders to reject the Deutsche Börse deal for the one from Nasdaq and ICE.

Deutsche Börse

Deutsche Börse’s role is to sit tight and manage its own shareholder base. It will also engage with NYSE Euronext in some American public relations. It will not only argue that its combination with NYSE Euronext would create American jobs that would otherwise be lost in the Nasdaq combination, but that international competition requires this combination so that NYSE Euronext can compete better. Expect Deutsche Börse to allow the NYSE name to be preserved in some way to burnish its American-friendly stance.

All of this will come to a head as the shareholder vote approaches. The real risk for NYSE Euronext is that Nasdaq and ICE may make a compelling-enough pitch that its shareholders demand a postponement of the meeting to better assess both bids. But, NYSE Euronext is likely to resist this unless defeat is at hand.

Instead, given the uncertainty around the Nasdaq-ICE bid, NYSE Euronext will likely attempt to force the issue to a head and force shareholders to choose by keeping a July 7 meeting date.

And there is substantial uncertainty that Nasdaq and ICE will be able to obtain antitrust clearance. Nasdaq and ICE have attempted to reassure investors that they are committed by promising a $325 million break-up fee if the deal is not completed. But NYSE Euronext will argue that this is not sufficient compensation for a deal with too much antitrust risk and in any event it would take longer, further diminishing the value of the Nasdaq-ICE bid. The time value of money, you know.

The Nasdaq-ICE proposed agreement provides grist for NYSE Euronext’s arguments. First, the fee is only payable if the transaction has cleared antitrust by March 31, 2012. The agreement uses the wording that it must go through all appellate review by then and any suit brought by the Justice Department must be final and not subject to appeal. But such litigation takes years. There is no chance judicial review of the deal will be completed by then if it comes to litigation.

Of course, this is less meaningful now that the agreement’s terms will be subsumed by the coming exchange offer conditions. And part of this is simply bidder posturing that Nasdaq and ICE would likely give on any negotiated agreement. Still, it highlights that there are still important terms of a Nasdaq-NYSE Euronext deal that need to be completed even if NYSE Euronext becomes willing to deal.

I am not aware of any significant transaction in which shareholders approved a deal of a company engaging in a strategic combination that was also subject to a hostile bid. The last of these was the Dollar Thrifty-Hertz deal, which was rejected by Dollar Thrifty shareholders in the face of a competing bid by Avis. But this could be the one in which shareholders decide to go with the current bid.

Article source: http://feeds.nytimes.com/click.phdo?i=6125c66fb2d1cb9263154d95d2188bed