Shares of NASDAQ OMX Group Inc. experienced the biggest fall since 2011 after it acquired eSpeed which is an electronic platform for trading the US Treasury bonds. This raised the concern over its credit rating among the investors. NASDAQ, incidentally, is the 2nd biggest operator of the US Equity Exchanges and it went down by 10% to $28.87. NASDAQ, on yesterday, agreed to acquire eSpeed from BGC Partners for a price of $1.23 billion. However, the price will vary depending on the sales goals. Incidentally, Moody’s Investors Service and Standard & Poor’s both – warned NASDAQ of possible lowering of debt rating because of this move.
The Chief Executive Officer or NASDAQ, Robert Greifeld, is joining the other exchange executives using takeovers for boosting profit amid declines in the stock trading. NASDAQ has been seeking to expand the interest rates for quite some time; this purchase may limit its ability to do other things such as buybacks, as stated by the Analyst of Portales Partners LLC, Paul Gulberg. Gulberg added further that the move is positive strategically, but, for near future, may turn out to be a financially questionable one. Hence, the stocks are reacting accordingly as well.
As part of the deal, NASDAQ is set to pay $750 million in cash, whereas, around 15 million common shares will be exchanged over the next 15 years. Incidentally, as part of the deal, BGC shares increased by 43% and is currently priced at $5.51 per share, marking its biggest gain since the initial public offering in 1999. In 1996, eSpeed was founded by Cantor Fitzgerald and it was used by banks throughout the world to trade both currencies and bonds.
Last December, NASDAQ bought Thomson Reuters Corp. These two transactions combined will put a debt worth $1 billion on NASDAQ, as far as the statement of Moody’s is concerned. The senior rating of Baa3 of NASDAQ has been put on review by Moody’s and it may experience a downgrade.
Moody’s statement stated further that it will now examine the capacity of NASDAQ to reduce leverage which is partly a function of the execution risks facing the firm as the same integrates both of the acquisitions right at the same time. The industry is prone to consolidation and as NASDAQ has shown its willingness to enhance leverage, it may face some similar decisions in future.