Nasdaq OMX shares tumble on acquisition plans
NEW YORK (AP) — Shares of Nasdaq OMX Group Inc. tumbled Tuesday after the stock exchange announced a deal to pay up to $1.23 billion to take over an electronic service for trading U.S. Treasury notes and bonds as part of an expansion into other investment fields.
THE SPARK: Under the deal announced Monday, Nasdaq will pay $750 million in cash and up to $484 million in stock to BGC Partners Inc. for a U.S. Treasury trading service called eSpeed. The move prompted Moody's Investors Service on Tuesday to place Nasdaq's ratings under review for possible downgrade.
THE BIG PICTURE: Nasdaq has been trying to lessen its dependence on the stock market by adding other investment services. The company agreed to pay $390 million last year for a part of Thomson Reuters Corp. that provides investor relations, public relations and webcasting services.
The latest deal will give Nasdaq an electronic platform for trading Treasury notes and bonds with maturities ranging from two years to 30 years. BGC said the operation generated just under $100 million in revenue last year. Nasdaq's revenue last year totaled $3.1 billion.
THE ANALYSIS: Moody's estimated that the eSpeed acquisition, combined with the Thomson Reuters deal, will result in a $1 billion increase in the company's debt and weaken its financial profile.
The ratings service said that while the acquisitions diversify Nasdaq's profit and revenue and reduce its dependence on the stock exchange, they also highlight the pressures facing the company in its core trading and clearing business where transaction revenue fell 13 percent last year.
The news prompted Keefe, Bruyette & Woods analyst Niamh Alexander to cut 2013 and 2014 earnings estimates for Nasdaq. Alexander, who kept a "Market Perform" rating on the stock, said that while the deal fits, it will lower the company's profits initially and disappoint investors who have been looking for Nasdaq to sell assets rather than buy them.
BMO analyst Jillian Miller, who also backed a "Market Perform" rating, said she remains skeptical about the deal's benefits, adding that the purchase price seems "lofty."
Raymond James analyst Patrick O'Shaughnessy kept his "Outperform" rating for Nasdaq, saying that while the eSpeed acquisition lacks the "slam-dunk accretion" of many of the company's other recent moves, it will boost revenue and further the company's diversification efforts.
THE SHARES: Down $3.31, or 10.3 percent, to $28.70 after dropping as low as $28.16 earlier in the session. Over the past 52 weeks, the stock has traded between $21.03 and $32.89. The shares are up about 15 percent so far this year.
BGC shares jumped $1.64, or 42.6 percent, to $5.49 in heavy midday trading after peaking at $5.59 earlier. Over the past 52 weeks, that stock has traded between $3.11 and $7.49.