By Murray Coleman
If you’re a shareholder of the NYSE Euronext (NYX) and three rivals representing two distinct groups are vying for your vote, would you:
2.) Take a smaller upfront offer from the Deutsche Boerse (DBOEY)? That would be worth around $10.2 billion.
Both groups are expected to sweeten the pot by offering shareholders a special dividend or buyback program.
But a third choice might be possible. In a note yesterday, Raymond James analyst Patrick O’Shaughnessy estimates that an auction of the company’s various parts could fetch shareholders an even better value on their investments.
“For example, we estimate NYSE’s U.S. equities business will generate roughly $70 million in net income in 2010. However, if a buyer were to strip out two-thirds of its operating expenses, the unit would instead earn $219 million,” he writes.
The mechanics of such a huge and complex auction would be daunting, notes O’Shaughnessy. Also, a lot of NYSE shareholders would likely immediately sell their new equity positions once a deal is completed, capping their upside.
“We assume that in an auction scenario, the potential buyer of NYSE’s various business segments would aggressively strip out costs, as there would be very little need for duplicate management teams, technology infrastructure and most other operating expenses,” O’Shaughnessy writes.
With such a starting premise, he estimates a $14.8 billion enterprise value for NYSE under such a scenario, with its shareholders netting roughly $50 per share after eliminating the firm’s net debt.
While a deal with the Deutsche Boerse is the most likely result, O’Shaughnessy adds that an auction might by NYSE’s best solution if neither suitor can muster enough shareholder and regulatory approval.
Shares of NYX closed up 1.7%, or 64 cents, at $38.90 on Thursday.