Bid battle looms for New York Exchange

A TAKEOVER battle is brewing in the wake of the New York Stock Exchange's announcement that it will buy electronic marketplace Archipelago to drag itself into the 21st-century trading world.

The deal gives the companies a total value of $4.7bn (£2.5bn). But a group of stakeholders, led by billionaire investor and former NYSE director Kenneth Langone, believes that calculation undervalues the NYSE and is on the verge of unleashing an alternative bid. The move has surprised some analysts who believe the current offer is generous.

If the NYSE's financials are combined with those of Archipelago, the group has $1.5bn in annual revenues and $85.7m in profits. The offer values the combination at three times last year's revenue and 55 times last year's earnings. But Langone's group of NYSE seat holders is mounting an effort to purchase the Exchange and override the announced merger.

NYSE and Archipelago last week unveiled an agreement that would create a new publicly traded company, NYSE Group. The move would launch the NYSE into electronic trading and end its two-century history of being owned by its seat holders. Under the deal, the seat holders would receive about $2.7m for their seats compared with the $1.8m they went for at the last sale.

Langone, who is worth about $1.2bn, is chairman of investment company Invemed Associates and a co-founder of Home Depot, America's largest DIY chain. More controversially, he is also a supporter of Dick Grasso, the NYSE chief executive who quit in September 2003 amid criticism of his $187.5m pay package.

Langone was named along with Grasso in a civil lawsuit filed last year by New York Attorney General Eliot Spitzer, who is seeking $12m in damages from Langone for allegedly misleading his fellow board members about the scope of Grasso's pay.

One US report says it is not just the money that Langone will receive that has him trying to mount a counter-deal, it is also the role of Goldman Sachs that is causing consternation.

The investment bank, which negotiated the takeover, has holdings in the NYSE and Archipelago, a situation that is causing conflict-of-interest rumblings.

Goldman took Archipelago public last August, receiving $1.7m in fees. It was also an early investor and still owns 15.5% of the company's outstanding shares. Meanwhile, NYSE chief executive John Thain is a former Goldman executive who oversaw the firm's investment in Archipelago.