NYSE eyes big fee from Nasdaq before firm talks

NYSE Euronext would likely want Nasdaq OMX Group to offer a massive fee to guarantee that its take-over bid will pass antitrust regulatory muster, before the NYSE is willing to engage in deal talks, two sources with knowledge of the matter said. The NYSE, eyeing AT&T's ambitious bid for T-Mobile USA as an example of another deal that faces tough regulatory scrutiny, would want as much as $2 billion in a so-called "reverse break-up fee" from Nasdaq, the sources said.
That is far higher than the hundreds of millions of dollars that Nasdaq is prepared to offer, two other sources said, and the issue is likely to be yet another sticking point in its contentious bid to buy the New York Stock Exchange owner. The board of NYSE Euronext last weekend rejected Nasdaq and IntercontinentalExchange Inc's $11.3 billion take-over bid, preferring to stick with a $10.2 billion bid from Deutsche Boerse AG on grounds that it was a better strategic fit and more likely to be approved by antitrust regulators.
Since then, Nasdaq has been courting major NYSE investors to convince them the NYSE board's decision was wrong. Nasdaq Chief Executive Robert Greifeld raised the idea of a reverse break-up fee with hedge fund managers on Friday - but was coy about its size, one investor said.
Two sources familiar with Nasdaq and ICE's thinking say they are considering a reverse break-up fee close to the 250 million euros ($361 million) agreed in NYSE's friendly deal with the German exchange. Nasdaq would likely offer a higher fee than $361 million, but one "in that realm," one of the sources said.
A reverse break-up fee is paid to the seller by the buyer when it is unable to close a deal due to antitrust or other reasons. Under their offer, Nasdaq and ICE would divvy up NYSE Euronext, with ICE taking the derivatives business for $6.3 billion and Nasdaq keeping the rest. One of the sources said NYSE currently values its derivatives business at around $5 billion, leading to roughly $1.3 billion in taxable gains for Nasdaq. Taxes on that could come to $350 million to $400 million, the source said. Some investors have also separately raised concerns about possible tax issues with the Nasdaq bid.
Nasdaq and NYSE declined to comment. The sources were not authorised to speak publicly about the discussions. A merger of Nasdaq and NYSE, the top US stock and listing exchanges, would face considerable antitrust hurdles, not unlike AT&T's $39 billion plan to buy Deutsche Telekom's T-Mobile USA to create the top US mobile carrier. AT&T has promised to pay Deutsche Telekom $3 billion cash, transfer valuable spectrum, and a roaming agreement if it is unable to get regulatory clearance for the deal.
Following AT&T's example, Nasdaq and ICE would have to come up with as much as a $2 billion break-up fee for NYSE to take it seriously, the first two sources said. One of them said the fee would need to be well over $1 billion. NYSE had looked into the possibility of merging with Nasdaq a year ago, the sources said, but decided the fit was unattractive, the synergies were not what it had initially thought, and that it couldn't be done for antitrust reasons.