In a blockbuster deal that merges a 212-year-old trading institution with a next-generation, eight-year-old wunderkind, the New York Stock Exchange will be joining forces with Archipelago Holdings (NYSE:AX) to become NYSE Group.
The deal isn't expected to close until the end of this year or early next year, but it clearly has investing implications right now. Archipelago investors will receive a 30% stake in the new company, while the owners of the NYSE -- essentially the nearly 1,400 entities that have bought seats in the long-standing marketplace -- will receive 70% of the new company as well as an aggregate cash sum of $400 million.
While NYSE Chairman John Thain acknowledged the historic achievements of his exchange, which serves as the home to more than 2,760 companies worth a collective $20 trillion, he also emphasized the importance of embracing the greater speed, efficiency, and innovation available through electronic platforms like Archipelago's ArcaEx.
"It's clear that we must do more," Thain said in announcing yesterday's pairing.
The exchange was already readying its NYSE Hybrid Market initiative, but this deal puts the pedal to the virtual metal. The deal comes just days after published reports indicating that Nasdaq (NASDAQ:NDAQ) was in talks to acquire Instinet (NASDAQ:INGP).
The regulatory group that oversees the NYSE will remain independent so it can maintain its unbiased governing independence.
So what does this mean for Archipelago investors? There are probably more than a handful of you out there -- the stock was recommended to our Rule Breakers subscribers three months ago.
Based on Archipelago's close yesterday, NYSE Group is currently valued as a $3 billion company. That certainly appears reasonable, if not outright cheap. The NYSE posted a modest profit of $24.6 million last year on revenue of $1.4 billion, and that was while it was being run as a nonprofit. Tack on Archipelago's consistent profitability -- the merger news eclipsed the company's first-quarter report, in which Archipelago earned $0.28 a share on $134 million in March-quarter revenue -- and you have a new, profitable company that produced nearly $2 billion in revenue last year.
That will definitely bear watching, and I imagine the new company won't mind if you trade as you watch.
- Does Archipelago have a thing for older companies?
- Check out the other stocks making the cut in the latest Rule Breakers issue.
- Check out our Broker Center if you want to learn more about the trade trade.
- For Rule Breakers subscribers, head on over to RB Central to find out what the community is saying about this recent development.
Longtime Fool contributor Rick Munarriz thinks that Thain may have been painting with broad patriotic strokes when he referred to the deal as "good for investors, good for America," but he likes the pairing of the old with the new. He does not own shares in any of the companies in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
