Chillin' out till it needs to be funded
Having a stock exchange of your own – IV
While SGX has given up after ASX firmly told it to go away, NASDAQ-ICE teamed up to get a better deal for NYSE shareholders in a consolidation that is likely to be value destructive in both cases. And I mean both Trans European / American executive Neiderauer backed Deutsche Borse proposal and the NASDAQ ICE deal which sells the trans Atlantic business in derivatives to ICE
With NASDAQ shouting out for $74o mln in savings the NYSE could not stay away from pursuing its Deutsche Borse option upping cost savings to Euro 400 mln or $728 million. Of course the savings are in Euro on their European forays and thus their value might keep on increasing thru 2011 whence the deal is completed ever. Given that despite headwinds to the Economy, emotions are finally likely to prevail and with anti trust under the beslt US is unlikely to have this deal coming through, it is a stretching of hope for the exchange for whom the estoppel to growth in the last few years has been damning and like Pharma, is billing undue premium into itself thence. The exchanges do save $3 bln in capital from having a single derivatives clearing platform in Europe but all the last 3-4 $10bln to $50 bln deals seem mildly value destructive at best and unfriendly to anti trust and national pride at the worst, thus unlikely to get through.
Some deals and superbrands may do better
For us, the most obvious thing shouting the uneven , unlikely values of the deals are the fact that flush PE investors/ LBO pioneers and others are staying away while they even have added exits planned this year and they are busy closing out billions of investments in the year. Neither Tech nor Pharma or Telecom and Stock Exchanges have really got a look in from PE / LBO operators. The value destruction risk lies in the fact that NYSE like the others mentioned are premium priced in their segment already and unlike T-Mo which has deleveraged the deal if benefits ordained are not achieved the other deals are money spent before the goods are shipped. And we have seen in most cases the goods in the mega deal are returned undelivered even after a decade.
What is worth the spend however is the corporate campaign taking shape in Europe that pits P&G against Unilever and the campaign is much fighting the same corporate dollar. Where there are inconsistencies like Dove vs Lynx in the Unilever or P& G portfolio, the more important fact is that both companies ship $20 bln and more every quarter in 50 odd brands but no one cares on the Continent especially and no one realises the close synergies each have, which is more likely yielding fresh cash in savings every year and soon. Even with traditional media giving way to social and online, digital forums for advertising and the dollar chasing emerging markets the size in the Developed Markets is huge and having someone know that you have a unified brand is 100X more important in that retail/consumer lifestyle space. I would bet on more such deal in the hitherto splintered global corporations in Hotels , Auto, Consumer, Retail ( Thanks Martin Sorrell ) and Financial Services than the frenzied deal making of the noughts.
Also, BTW, Cadbury’s Oreos are hitting the shelves in India and are a sure shot winner for Kraft , probably likewise in Aussie and Newzealand apart from the UK where Cadbury’s had a brand. Even that example showcases the importance of creating value in a deal rather than betting 1:100 on a tough cookie 😀