Even After Tripling in Price, NYSE Seats May Be a Bargain

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The New York Sun

Memberships on the New York Stock Exchange may be a bargain even after the price almost tripled this year and exceeded $3 million for the first time.


The difference, or spread, between the cost of a so-called seat and the value of the NYSE’s offer to members in connection with its proposal to go public has widened to $1.08 million from a fourth quarter low of $392,000 on October 20.


By combining with Archipelago Holdings, the third-largest American electronic market, the exchange wants to become a for-profit, publicly traded company. The wider spread reflects investors’ enthusiasm for the transaction, coupled with the difficulty of buying a seat on the Big Board.


“People are excited that the deal will get done, and buying Archipelago stock is a backdoor way to own a piece of the New York Stock Exchange,” said John Orrico, who manages the $200 million Arbitrage Fund for Water Island Capital in New York.


“There is a premium on Archipelago shares because it takes days to buy a seat on the exchange.”


The takeover will enable the NYSE to start trading the shares of companies listed on the Nasdaq Stock Market, along with options and exchange-traded funds. The combined company will have a market value of about $7.92 billion.


Shares of Archipelago, based in Chicago, have more than doubled this year and reached a record $51.25 November 3. The price rose 29% in the last month even as a group of NYSE members pursued a lawsuit to delay voting set for next month.


The suit was settled on Tuesday with an agreement for an independent evaluation of the proposal. Archipelago shares gained $1.72, or 3.5%, to $50.30 in composite trading on the Pacific Exchange. An NYSE seat sold yesterday at a record $3.25 million, narrowing the spread.


Under terms of the takeover, each Big Board member will receive 80,177 shares of the combined company, NYSE Group, and about $300,000 in cash. They can elect to receive more stock and less cash, or vice versa. Archipelago’s holders will get one share of NYSE Group for each of their shares.


The standard offer to the members puts a $4.33 million value on each seat, based on Archipelago’s current price. The seat price yesterday was up from a sale two days ago at $3.025 million.


The spread reached $1.41 million on November 3, after the final proxy statement for the takeover was mailed to members and shares of Archipelago rallied. This month’s peak was just below the high of $1.46 million, set on July 11.


The New York Sun

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