Since the merger was announced in April, it has been widely seen as a brilliant move. With one bold step, the 213-year-old privately held stock exchange will emerge as a public company poised for growth and global competition.
To proceed with the merger, the NYSE will need two-thirds of the votes cast by a quorum of its Members to be in favor of the deal. In addition, the NYSE will need clearance from the Securities and Exchange Commission on the rules pertaining to the merged entity’s corporate governance and structure, trading licenses and other transitional matters. The SEC on Nov. 3 declared effective the “Form S-4 Registration Statement,” spelling out the terms of the proposed merger agreement, and the Department of Justice on Nov. 16 completed its review of the transaction.
In addition to the NYSE becoming public, the merger will help the Exchange achieve key strategic objectives. By linking up with Archipelago, the NYSE will gain a 25-percent share of trading in the over-the-counter market. The NYSE will acquire the options business of the Pacific Stock Exchange. It will deepen its business in the trading of exchange-traded funds, which are growing rapidly, and gain a new platform for trading bonds and other financial instruments. The Exchange will also build a new listings platform to expand its market share and to give companies that do not currently meet the NYSE's criteria a choice of where to list.
“We believe that our combination with Archipelago maintains our leadership position and fulfills our goal of becoming a globally competitive, multi-product marketplace,” said NYSE CEO John A. Thain.
If approved, the merger will be the largest ever among securities exchanges and will combine the world’s leading cash equities market with the first totally open, fully electronic exchange.
Under the proposed merger, the NYSE and Archipelago will become part of a group under a newly formed for-profit and publicly traded holding company, NYSE Group, Inc. NYSE Members will receive a 70 percent stake in the new company, with Archipelago shareholders receiving 30 percent.
There is strong support for the merger among NYSE Members. Seat prices have soared to a record $3.25 million since the proposed merger was announced—a hearty thumbs-up from the market. While Members are thrilled with the jump in seat prices, they are also excited about the opportunities that the merger means for the NYSE. They view the merger as a way to strengthen the Exchange's global competitiveness and as a big win overall, particularly for investors, who now have a chance to own a piece of a larger-than-life American icon. A lawsuit by 10 Members of the Exchange to enjoin the vote was settled on Nov. 15.
Below are excerpts of interviews with six NYSE Members.
INTO THE 21ST CENTURY
John Jakobson, NYSE member since 1955
“Do you support the merger?
I certainly do. We had been looking to go for-profit and then become public, and with this transaction, we’re able to accomplish both with one stroke. I think it will bring us into the 21st century as an exchange and gives us the opportunity to broaden our base and become a financial powerhouse.
What is the most compelling reason for the merger?
I would say that it’s the way the market has appreciated. The tripling in value of seats and the tripling in value of Archipelago stock seems to show an enormous amount of confidence in what the future of the combined entities would be.
A MATTER OF CUSTOMER CHOICE
Bill Powers, NYSE member since 1987
“Do you support the merger?
Yes, unequivocally. The investment community has a very favorable opinion of the transaction, and we don’t know how long this window is going to be open, so the sooner we get into that window the better off we are. Any of the alternatives to the transaction we are trying to complete will take a number of years, the least of which would be two years, and some say as much as four years.
What is the most compelling reason for the merger?
The most compelling reason for the merger is that we need to give our customers choice. Our specialist system is the finest in the world, but some people have chosen not to use it. We have to recapture those customers who want to use the electronics as extensively as other venues have allowed. In one fell swoop we’ll be able to capture, or have a chance to capture, many of those customers back.
How do you feel about the NYSE becoming a public company?
I’ve been involved with public companies for a number of years, and it’s basically a good thing because you’re subject to a lot more scrutiny. You tend not to make uneconomic or irrational decisions if you’re a public company. I think it’s good for the NYSE to be in that type of environment.
CURRENCY FOR FUTURE GROWTH
Jim Rutledge, NYSE member since 1973
“Do you support the merger?
I support it wholeheartedly because it enhances our competitiveness in the global marketplace. By combining the two models, we’re creating a platform that integrates high speed and anonymous trading with the benefits of the floor. It also gives us the capacity to expand or deepen our business model across multiple asset classes, including options, ETFs, Nasdaq, debt instruments and probably others going forward.
How do you feel about the NYSE becoming public?
I think it’s terrific and very much needed. First of all, it gives us currency for future growth. As the global marketplace continues to expand, we will no doubt have to make strategic moves in other marketplaces. With currency in the form of NYSE stock on hand, we’ll be able to do so more easily. It also offers an opportunity for the public to participate in what appears to be a rapidly improving marketplace.
Are the terms of the merger fair, particularly with regard to the 70/30 split?
I believe that 70/30 is fair. Am I ecstatic about it? No. However, I think opportunity costs are more important than a 70/30 change in the NYSE’s favor. Aside from that, I think the rest of the terms are more than fair. I think the faster we get this transaction done, the better off the Exchange will be moving forward.
VICTORY FOR EVERYBODY
Thomas Caldwell, NYSE member since 2003 and owner of 34 seats
“Do you support the merger?
I think it’s a major victory for everybody, including the investing public. On Jan. 21, 2004, I began to actively campaign for a demutualized, for-profit and publicly held New York Stock Exchange. What I did at that time was articulate ideas whose time had already come and were already the norm in other parts of the world. As far as I’m concerned, we literally have no choice. Whenever you put a for-profit and not-for-profit entity competing with each other, for-profit always wins because you have to be sharper, more efficient and more driven.
What is the most compelling reason for the merger?
It helps us build the electronic side of the business. To quote management, for every dollar that trades in the cash market, $1.50 trades in the derivatives markets. Much of our volume is being generated by hedge funds, which value speed of execution.
Are the terms of the merger fair, particularly with regard to the 70/30 split?
The difference between 70/30 or 75/25 or even 80/20 is not the main issue. The main issue in my mind is what happens after the approval of the deal. I think the point is we have to get going. We have a deal, and the deal that we are going to be called upon to vote on is 70/30. I think there are very strong cases for going with this deal, so that we get into action sooner rather than later. I think if we had to go back to the drawing board that could be problematic because, frankly, this is not an "at your leisure" war. Our competitors are not sitting around waiting for us to get our ducks in a row. Many of our members would also be quite distressed with a long delay in this transaction.
EXTENDING THE REACH OF THE NYSE BRAND
Robert Fagenson, NYSE member since 1973
“Do you support the merger?
I think strategically it’s a very intelligent way for the Exchange to proceed. Basically if you take a look at us historically, after 200-plus years we’re still a one-trick pony. We’re the greatest equity market in the world, but we really don’t do much of anything else. I think the merger with Arca gives us entry into a variety of other product lines. It gives us the ability to laterally extend the reach of the NYSE brand into areas that are growing much more rapidly than the basic trading of equities.
How do you feel about the NYSE becoming a public company?
That to me is one of the most disquieting aspects of the merger. It’s difficult giving up direct ownership of the NYSE and having a direct impact on the Exchange’s future. On the other hand, there’s been a tremendous amount of agitation caused by the gradual shift to absentee ownership. The vast majority of people who own seats are no longer active in the business. If you took a look at equity ownership of people who are actually using their seats directly on the floor of the Exchange, my guess is that it would be 100 or less. It’s an absolute diametric shift from where it was 30 years ago. As a result, the lack of commonality in terms of the objectives of the seat owners and those in the business has led us almost inescapably to the door of becoming a public company.
Is the deal fair?
On the face of it, it would appear to be the place at which the deal could be done. If you value the strategic strength of the deal, then you would say that it’s fair. Whether or not it’s fair in the context of the relative values of the companies is very much subject to interpretation. Clearly as a seat owner I’d like to see a better deal, but by the same token, as a seat owner I would like to make sure that there is a deal. And you can only negotiate so far before you risk losing the deal itself.
INCREASING THE NYSE FOOTPRINT
Bob McCooey, NYSE member since 1988
“Do you support the merger?
I definitely support the merger. It brings the Exchange to a place where it needs to be from a competitive standpoint, a global standpoint and a publicly traded standpoint. The NYSE is going to be competing against not only domestic rivals such as Nasdaq—which is going to be a more formidable competitor once the Nasdaq-Instinet merger is completed—but also against international competitors like the Deutsche Börse, the London Stock Exchange and Euronext, which are all publicly traded. We also need to have a more expansive platform, which Archipelago brings through its electronic capability and its ability to trade options, corporate bonds and foreign stocks. I think it will be a good opportunity for the Exchange to increase its footprint in the trading space, to add more products, and to give people the ability to invest in the NYSE.
How do you feel about the NYSE becoming public?
I have mixed emotions. I recognize that when the deal is complete, the McCooey’s, who have been Members for more than 50 years, will no longer be Members. We’ll be regular shareholders like those in any other corporation. I’ve been a Member for almost 18 years, and there’s a real attachment to your seat. We will still have the ability to go on to the floor through our trading rights and transact business on behalf of our customers. The fact is that it changes in a way that is more sentimental. I feel nostalgic now and will be even more nostalgic as we get closer to closing the deal. When we bought our seats, we never bought them as an investment that we were going to transform into stock and cash. We looked at it as an important tool to do our business and serve our customers.
Forward-Looking Statements
Certain statements in this article may contain forward-looking information regarding the NYSE and Archipelago and the combined company after the completion of the transactions that are intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, the benefits of the business combination transaction involving NYSE and Archipelago, including future financial and operating results; the new company’s plans, objectives, expectations and intentions; and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of NYSE’s and Archipelago’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements.
The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the ability to obtain governmental approvals of the transaction on the proposed terms and schedule; the failure of NYSE members or Archipelago shareholders to approve the transaction; the risk that the businesses will not be integrated successfully; the risk that the cost savings and any other synergies from the transaction may not be fully realized or may take longer to realize than expected; disruption from the transaction, making it more difficult to maintain relationships with customers, employees or suppliers; competition and its effect on pricing, spending, third-party relationships and revenues; social and political conditions such as war, political unrest or terrorism; general economic conditions; and normal business uncertainty. Additional risks and factors are identified in Archipelago’s filings with the Securities and Exchange Commission, including its report on Form 10-K for the fiscal year ending Dec. 31, 2004, which is available on Archipelago’s Web site at http://www.archipelago.com , and the registration statement on Form S-4 filed by NYSE Group, Inc., with the SEC on July 21, 2005 (and amended on Sept. 24, 2005, Oct. 24, 2005, and Nov. 3, 2005).
You should not place undue reliance on forward-looking statements, which speak only as of the date of this document. Except for any obligation to disclose material information under federal securities laws, none of the NYSE, Archipelago or the combined company after the completion of the transactions undertake any obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this document.
Important Acquisition Information with Respect to the Merger
In connection with the proposed merger of the New York Stock Exchange, Inc. (NYSE) and Archipelago Holdings, Inc. (Archipelago), NYSE Group, Inc., has filed a registration statement on Form S-4 with the Securities and Exchange Commission containing a joint proxy statement/prospectus regarding the proposed transaction. The parties have filed other publicly available relevant documents concerning the proposed transaction with the SEC. The SEC declared the registration statement effective on Nov. 3, 2005.
NYSE MEMBERS AND ARCHIPELAGO STOCKHOLDERS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED TRANSACTION BECAUSE IT CONTAINS IMPORTANT INFORMATION. NYSE members and Archipelago stockholders can obtain a free copy of the final joint proxy statement/prospectus, as well as other filings containing information about NYSE and Archipelago without charge, at the SEC’s Web site (http://www.sec.gov). Copies of the final joint proxy statement/prospectus can also be obtained, without charge, once they are filed with the SEC by directing a request to the Office of the Corporate Secretary, NYSE, 11 Wall St., New York, N.Y. 10005, 212-656-2061, or to Archipelago, Attention: Investor Relations, 100 South Wacker Dr., Suite 1800, Chicago, Ill. 60606, 888-514-7284.
The NYSE, Archipelago and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from Archipelago stockholders in respect of the proposed transaction. Information regarding Archipelago’s directors and executive officers is available in Archipelago’s proxy statement for its 2005 annual meeting of stockholders, dated March 31, 2005.
Additional information regarding the interests of such potential participants will be included in the joint proxy statement/prospectus and the other relevant documents filed with the SEC when they become available. This article shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
