Subject:  Members Are Told of Plan for Sale of Big Board Stock |
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Date Posted: 11:00:38 10/08/05 Sat
Members Are Told of Plan for Sale of Big Board Stock
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By JENNY ANDERSON
Published: October 8, 2005
The chief of the New York Stock Exchange told members on Thursday night that they might be able to sell $1 billion to $2 billion of the stock they will be issued after the exchange buys Archipelago Holdings, two people at the meeting said.
According to regulatory filings, a secondary offering permitting members to sell their stock will be made after the deal closes. Thursday's comments from John A. Thain, the chief executive of the Big Board, suggest there could be widespread demand for the stock. Such a deal would be appealing to retired members of the exchange who hope to cash in on the value of their seats.
"It was a watershed meeting," said Jim Rutledge, a member of the exchange. "The quicker they can get access to monetizing their asset the happier they'll be."
According to the original terms of the deal, members would have had to wait as long as five years to sell their stock. Those terms were later modified so that members can now cash in a third of their stock every year for three years, and sooner if a secondary offering is completed. The stock sales are restricted through a lockup to keep trading in the stock orderly.
Mr. Thain and Gerald D. Putnam Jr., the chief executive of Archipelago, have been talking to investors to gauge interest. Investment banks, looking to pitch the exchange on underwriting the secondary offering, have indicated widespread demand.
"We expect to do a large secondary offering as quickly as possible following the closing of the deal to provide liquidity much faster than the lockups," Mr. Thain said yesterday in an interview.
Appetite for a large secondary offering means members would be able to sell a substantive portion of their stock immediately.
In April, the New York Stock Exchange, a nonprofit entity, said it would buy Archipelago, an all-electronic exchange that trades Nasdaq stocks, options and exchange-traded funds.
Upon completion of the deal later this year or early next year, the New York Exchange will be a for-profit publicly traded entity. Exchange members will own 70 percent of the new entity, called the NYSE Group. Archipelago shareholders will own the remaining 30 percent.
Based on Archipelago's stock price, each Big Board member will receive $3.2 million for his seat and an additional $300,000.
The deal has generated controversy, both for the way it was executed and for its terms. William Higgins, a retired floor broker, and 10 other exchange members have sued the Big Board , asserting that its members should own a greater percentage of the combined entity.
Mr. Thain said yesterday that he would not consider renegotiation of the 70-30 split.
At the meeting on Thursday, Mr. Rutledge asked if Mr. Higgins would be willing to permit the members to vote on the deal without seeking to stop it in court.
"We're calling on Mr. Higgins to allow us to exercise our democratic right to vote," Mr. Rutledge said. Mr. Rutledge also suggested that Mr. Higgins put up a $3.5 million bond for every member in the event that he derails the deal.
A representative for Mr. Higgins did not return calls for comment.
As soon as the Securities and Exchange Commission gives preliminary approval of certain regulatory documents, a final filing will be made with the agency. The Big Board will then give members 30 days to vote for or against the deal. Two-thirds approval is required for the deal to go through.
One longtime member said support for the transaction was widespread. "There are a handful of vocal people who have spoken in opposition - it's a handful of people, they have very little support and they have cost us money for frivolous lawsuits," said John R. Jakobson, the member. "There is extraordinarily widespread support for this."
Mr. Thain said that the exchange had not selected an investment bank, but that many would probably be selected.
Many member firms with significant operations on the floor, including Merrill Lynch, expressed anger at how the deal was executed. In an unusual arrangement, Goldman Sachs advised both parties on the idea of merging the entities.
While Lazard and Greenhill & Company were later brought in to negotiate the terms of the deal and to offer fairness opinions, many people on Wall Street said Goldman played far too great a role in a deal that affected all of the member firms, who collectively own the exchange.
http://www.nytimes.com/2005/10/08/business/08nyse.html?ex=1129435200&en=d5290334430f2544&ei=5053&partner=NYTHEADLINES_BIZ
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