One on One with Patrick O'Shaunessy, Financial Service Analyst at Morningstar
Wednesday, December 20, 2006
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SUSIE GHARIB: The big board took a giant step towards getting much bigger today and becoming the first transatlantic securities market. Shareholders of the New York Stock Exchange OK’d its purchase of Paris-based Euronext landslide, with 99.7 percent of shareholders who voted approving the deal. The purchase closes in the first quarter of next year. The combined companies will then be known as NYSE Euronext and it will be the largest exchange in the world. The deal is just the first in what is believed to be a flurry of cross border mergers of financial exchanges. The big board's cross town rival NASDAQ is already trying to buy the London Stock Exchange. Joining us now, Patrick O'Shaunessy, financial service analyst at Morningstar. Patrick, welcome to NIGHTLY BUSINESS REPORT.
PATRICK O'SHAUGHNESSY, FINANCIAL SERVICES ANALYST, MORNINGSTAR: Hi, thanks for having me.
GHARIB: Well let me begin by asking you, this landmark transaction certainly rearranges the market. Is that a good thing?
O'SHAUGHNESSY: I think it is a great thing. It's really opening up new trading opportunities for investors on both sides of the ocean. You might see longer trading hours, new trading products such as perhaps mixing equities with futures or things of that variety. And it really opens up a lot of new avenues for investors
GHARIB: Will the NYSE Euronext be helpful for investors?
O'SHAUGHNESSY: I certainly think it will be. Any time that you have new opportunities, investors are going to take advantage of those opportunities and they'll find a way to make a buck wherever a buck can be made
GHARIB: But will it reduce - will it mean better prices for investors?
O'SHAUGHNESSY: That remains to be seen. A lot of the consolidation that you're seeing going on right now is due to some of the competition that exchanges like the New York Stock Exchange and the NASDAQ are facing right now. You have smaller ECNs and some regional exchanges adding pressure, so the larger exchanges are trying to consolidate in order to lower costs and better be able to lower their fees. So I would say at the worst it should keep fees about where they are although I think the long- term trend investors are going to see is that fees will continue to decrease.
GHARIB: As you look ahead in terms of more consolidation between these cross-border exchanges, do you see that the next step of the New York Stock Exchange Euronext will be doing a merger in Asia?
O'SHAUGHNESSY: I think that's one of three opportunities that they'll have going forward. I see a potential merger in Asia because they've expressed interest in that. You can also potentially see them investing in a futures exchange in the U.S. and a third opportunity would be investing in a smaller regional exchange in Europe.
GHARIB: Let's talk a little bit about NASDAQ. It's been trying to do a merger with the London Stock Exchange and has been rebuffed by every attempt that it's made. Do you think though that ultimately in 2007 we are going to see a merger between these two exchanges?
O'SHAUGHNESSY: I think that the writing is on the wall for the LSE as a stand- alone exchange. NASDAQ has been really aggressive in accumulating shares and now owns about 30 percent of the LSE and you have a lot of hedge funds really adding their two cents into the fray and it really looks like at the end of the day the NASDAQ is going to end up with the London Stock Exchange. They might have to add a little bit more to their offer, but I think eventually it's going to get done.
GHARIB: Let's talk a little bit about the stocks. I know you like the stocks of both the NYSE and the NASDAQ. Let's talk about the NYSE first. What's so attractive about it?
O'SHAUGHNESSY: Sure. Well, we really like the growth opportunities that the Euronext merger presents. And then beyond that, we really like John Thane's aggressive stance at consolidating the industry and really being the driving force in changing it and not just belaboring the fact that fees are going down, but really taking the next step and looking to see what's beyond. So the New York Stock Exchange currently is trading around 100 and we have a $128 fair value estimate on it here at Morningstar.
GHARIB: How about the NASDAQ stock?
O'SHAUGHNESSY: The NASDAQ we also like. It's currently trading around 33, 34, I believe and we like it. We believe its fair value is around 53 or 54. We think that it has opportunity to take some market share in (INAUDIBLE) list of stocks and we think that it's also going to take an active role in the consolidation of the industry
GHARIB: All right, a lot of good information. Thank you so much Patrick.
O'SHAUGHNESSY: My pleasure.
GHARIB: We've been speaking with Patrick O O'Shaughnessy, financial services analyst at Morningstar.
