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NYSE battles to keep Arca hopes alive
Andrei Postelnicu, FT Syndication Service
10/14/2005
NEW YORK: The cooler New York gets in the autumn, the hotter things seem to become at its venerable stock exchange.
Weeks after the second anniversary of a bruising governance and compensation crisis, the New York Stock Exchange (NYSE) is facing yet another challenge. It needs to persuade two-thirds of its 1,366 members that a takeover of electronic rival Archipelago remains as good an idea as when it was first proposed in April.
To achieve that, the NYSE will have to build a consensus in a membership rife with in-fighting and animosities. John Thain, chief executive, met some of the exchange members early this month. He has little time left to rally support.
Regulators are understood to be nearing completion of their review of the deal. If they approve it, the exchange wants to submit it to members for a vote by December.
Opposition to the deal has regained strength in recent times following the emergence of research suggesting the NYSE would be better off cancelling the proposed transaction with Archipelago, also known as Arca.
The research by UK bank HSBC promotes the benefits of a private equity investment in the NYSE which would give exchange members the option of receiving a lump cash payment or a combination of cash and stock in the for-profit company that the NYSE would become.
HSBC said "an investment group", understood to be private-equity concerns Blackstone and Bain Capital, would be prepared to offer NYSE members $3.0m each for their share of, or seat on, the exchange. Alternatively, members could receive 70 per cent of the equity in the post-investment NYSE and a $300,000 payment, but the equity would be valued at a 25 per cent premium over the Archipelago deal.
The research report fuelled discontent among some NYSE members who had initially argued the exchange was selling itself short under the terms of the Arca takeover, that also offers NYSE members 70 per cent of the equity in the post-merger group but at a lower price.
Mr Thain said the exchange never received a formal bid from the investment group mentioned by HSBC. However, irate NYSE members fault him for not examining alternatives to the Arca deal and flatly proclaiming the exchange "does not need capital, and [is] not for sale".
They are also unhappy about the controversial role of Goldman Sachs, Mr Thain's former employer, advising both the exchange and Archipelago on the transaction. In addition, the litigants question a fairness opinion issued by Lazard, saying it undervalued the exchange and pointing out that Lazard's independence was questionable because its IPO was underwritten by Goldman.
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