Nasdaq, Goldman May Bid for Philadelphia Exchange (Update1)

By Edgar Ortega
Enlarge Image/Details

Oct. 19 (Bloomberg) -- Nasdaq Stock Market Inc. and brokerages including Goldman Sachs Group Inc. are weighing bids for the Philadelphia Stock Exchange, four people familiar with the matter said.

Nasdaq, which is seeking to enter the derivatives business this year, as well as Goldman and Susquehanna International Group LLP, two of the largest U.S. options market-makers, have told officials at the Philadelphia exchange they may make an offer, the people said. The exchange, which is the third-largest U.S. options market, set an Oct. 23 deadline for bids and plans to review them before deciding whether to sell or proceed with an initial public offering, one of the people said.

Options trading has surged 36 percent, the fastest pace in seven years, as investors increasingly use derivatives to boost returns. The Philadelphia exchange pairs off about 14 percent of the 10.8 million contracts that change hands daily, and may also draw bidders because of its stock clearing and depository license, said Warren West of Greentree Brokerage Services Inc.

``The exchange is a very attractive entity from a number of different perspectives,'' said West, president of the Philadelphia-based brokerage. ``With options trading at record levels, and the Philadelphia exchange doing a good percent of that, they could be making lots of money.''

Exchange Consolidation

NYSE Euronext, owner of the New York Stock Exchange, may also be interested in bidding for the Philadelphia market, the Wall Street Journal reported earlier today on its Web site, citing people familiar with the deal.

Spokespeople for NYSE Euronext, Goldman and the Philadelphia exchange declined to comment. Silvia Davi, a spokeswoman from Nasdaq, also declined to comment.

Exchanges worldwide have completed or announced $39 billion in acquisitions and joint-ventures this year as they seek to meet investor demand to trade securities and derivatives all in one place. Nasdaq earlier this month acquired the Boston Stock Exchange in a deal valued at $61 million to expand equity trading and enter the clearing business.

The money-losing Philadelphia exchange in August hired New York-based Greenhill & Co. to explore strategic options after settling a lawsuit by shareholders over a 2005 deal that gave a controlling stake to six brokerages.

The firms, including Merrill Lynch & Co. and Morgan Stanley, paid $33.8 million for a majority stake in the Philadelphia exchange. The market may now be valued at between $600 million and $700 million, said one of the people, who declined to be identified because the negotiations are private and may not lead to a deal.

Failed Deals

The Philadelphia exchange has held talks with a number of brokerages and exchanges over the years and failed to complete deals. Nasdaq and the Philadelphia exchange agreed to merger terms in 1998 before breaking off the planned combination the following year.

The 2005 agreement with the Wall Street firms helped the Philadelphia exchange surpass the American Stock Exchange as the third-largest options market in the U.S. by number of contracts traded. The Chicago Board Options Exchange is the biggest, followed by International Securities Exchange Holdings Inc., according to Options Clearing Corp., which guarantees all trades.

Revenue last year increased 37 percent to $113.5 million from a year earlier, according to the Philadelphia exchange's annual report. Its net loss narrowed to $424,000 last year from $13.9 million in 2005.