NASDAQ's offer: what obligations does it impose on the NYSE board

Last week NASDAQ and the Atlanta-based IntercontinentalExchange reportedly offered to acquire the NYSE for $11 billion, a bid that bests the one made by Deutsche Börse, Germany’s leading stock market, by more than 20 percent.

The NYSE reportedly has indicated that it will review the unsolicited proposal but, according to John Coffee, a renowned corporate governance expert and Columbia Law School professor, the offer doesn’t oblige the NYSE board to auction off the company.
 
‘Because the Deutsche Börse/NYSE deal is a stock-for-stock exchange deal, it qualifies under Delaware law as a merger of equals,’ Coffee explains. That means the NYSE board isn’t obliged to pursue the highest offer and can ignore the NASDAQ offer, he adds.
 
Moreover, under the terms of the acquisition agreement between the NYSE and Deutsche Börse, the NYSE board of directors can’t even talk to NASDAQ until it first determines – in consultation with its counsel – that the NASDAQ offer represents a superior proposal, according to Coffee. In making that determination, the NYSE board is required to factor in potential legal and regulatory problems
 
‘And the legal and regulatory problems the NASDAQ offer brings up are significant because there’s an anti-trust problem,’ Coffee notes. ‘Deutsche Börse doesn’t really compete with the NYSE but NASDAQ does, tooth and nail. Therefore, the NYSE board could justifiably determine that the NASDAQ offer – although financially superior – is not a superior proposal because of the regulatory problems.’
 
Even if the NYSE board does ultimately determine that the Deutsche Börse offer isn’t in the NYSE’s best interests, under the terms of the Deutsche Börse/NYSE agreement the German exchange is still entitled to a binding shareholder vote on its offer.
 
‘It’s entitled to see whether shareholders will support it even if the board no longer does,’ Coffee says. ‘If voted favorably, that can make the merger binding.’