Speculation on NYSE’s stock price post acquisition.

The market has been on a spree on the M/A activity. Many speculations, many rumors running through the whole market. One of those comes from the Exchanges sector.

New York Stock Exchange acquired Euronext lately and has been on a tear DOWN in the stock price since early this year. It seems to have found the bottom at around $73, nearly a 30% drop from it’s year high. The lower stock prices, bullish comments from some street gurus and analysts, and a smooth integration news with record trade volumes on the merged NYSE-EUR (NYX) gave the stock a little squeeze and boost since the last fortnight. We have speculation going on here with Thain looking to dig into futures.

This lets traders speculate on the stock price going forward. Many opine that paying a premium actually diminishes the acquirers value in stock price. but is it always true? Here is my opinion. Please feel free to comment.

Paying a premium doesn’t matter. Acquisitions automatically involve premiums. It is kinda intrinsic. Can you recall an acquisition without any premium. If the market now values NYX at 83…that will be taking into consideration that we’ll be paying to NMX or ICE or whatever for that matter. We do not have debt at all. In fact we have cash. It is no wrong that we use that for an acquisition. There may be a slight drop in the stock price but that shouldn’t be big.
Can you recall any analyst or any body from a big firm saying that an acquisition will be a negative? It was just individual investors speculaing that there would be a drop to 65’s 60’s etc. I don’t say that we won’t have a drop. But that won’t be a 10-15%. We are not going to drop back to those 75 levels, IF we acquire. May be we’ll drop if the fundas change. The street just recognised what it has been doing with NYX, after it watched CME-BOT merger.
Let us see it with the earnings :
If we acquire NMX :
Our 2008 EPS would be :
NYX - $3.37 (which will be revised more than once in my view after analysts recognise what exactly Euronext brings to NYSE)
and
NMX - $3.65
The total would be more than $7.
Give it a P/E of 30. What do we have here ? A stock at 210.
But let me tell you that not one exchange is trading at a P/E of 30 now. The lowest is 33 and the highest I could find was around 65.
Take the average and apply that for NYX (for sure I think we’ll have a name change 49 P/E would give us 49 * 7 $301 by the end of 2008.
If we acquire ICE our earnings in 2008 would be ICE - 4.93
Total EPS 8.4
A P/E of 30 places us at $252 and a P/E of 40 places us at $336. Don’t even calculate where the 49 P/E would take us !
That’s consolidation.
All these prices take in that we go through the consolidation without any hiccups. This is only true if the integrations go smooth.
Note: All EPS estimates are taken from BOA Investment Services as of 7/13/2007.

Hope this helps.
Thanks,
Your Adarsh
www.youradu.wordpress.com.

If I were Thain (as of this moment)

I know I’ll call many of my friends here o critisize me with this
post.
Many would say I’m wrong. But just read on.
If I were Thain at this moment. I’ld go ahead and throw a
very competitive bid for NMX and acquire them. Let the market digest
the news, let the shorts ride NYX for the short term. The way NYX is
doing now gives shorts more time, to take the stock lower on the
speculation that we’ll be acquiring ICE/NMX. Why not just do it and
give the shorts less time? Let them take it to lower 70 may be higher
60’s I’m not concerned coz everybody will applaud Thain (me) as soon
as 1st quarter 2008 or a bit later, as soon as NYX realises the
potential of the two huge acquisitions we made. Hope Thain does it asap.

Not freaking out, but I think we are giving shorts time to
gobble our share, just speculating the news, which they’ld relish
until we report a great quarter and tehn give us a big BIG BIGGER
squeeze. I don’t care even if we miss the quarter results owing to the
acquisition costs which should be less, considering that both NMX and
NYX are pretty near, cutting miscelleneous costs (yya I know but
that’s a chunk too)

Moreover, it was good to hear that things with Euronext
are working out quite well as planned and we are not having any
problems there. It’s high time we gobble NYX and change our name to
GLOBAL STOCK EXCHANGE. (Dreaming about the GSE like the World Bank) :-o

Ideal Buy: Buy NYX after the acquisition. Mind you it’ll trade side ways till the next quarter earnings for sure.

Buy NMX and ICE for that upside on the bid. As of now take NMX and buy ICE considering the ICE- CME-BOT deal.

Adarsh owns NMX, ICE and NYX as of today.

*NYMEX is a buy here!!!

yya I’m a little late…three trading sessions late… But NYMEX - NMX can get almost as high as $155-$160, if someone expresses interest in it… and if there is a bid fight the sort of one going on between CME, BOT, and ICE, then we ride higher.

I was just a little suspicious of the rising 10 year (fingers crossed) which may slow down the MA activity, but the market has dropped enough taking off that effect from play now .

Short term : Play it for that 15 -20 Bucks each share.

Today’s closing price : 139.80

Good Luck to ya all.

Adarsh does not hold NMX as of 6/14/07

Plans to get a bunch on 15th, and wait for a RED day, which we at youradu, LOVE.