In an effort to restructure its business operations, NYSE Euronext Inc. intends to vend of its 4.79% stake in India-based multi-commodity exchange – MCX Stock Exchange (MCX), according to Reuters. The company expects to earn about $45 million from the sale.
In Jun 2008, NYSE had bought about 5% holding in MCX for about $44 million. However, the MCX business is not generating healthy returns for NYSE due to weak market response from the investors.
Hence, the company has pegged to sell about 2.44 million shares that it owns in MCX between $18.4 and $18.8 per share. At the higher end, this sums to about $45 million. On Mar 7, the shares of MCX closed at about $18.85 in India.
The latest sale is an effort undertaken by NYSE to simplify its business by shedding off non-core assets, particularly in the wake of the ongoing merger deal with IntercontinentalExchange Inc. (ICE - Analyst Report). NYSE may not want to repeat the mistake of being disliked by the regulators, which happened during the failed merger deal with Frankfurt-based Deutsche Boerse last year.
The company is looking forward to ward off all kinds of probable difficulties that could raise questions among regulators in the current deal with IntercontinentalExchange. Amid this, an inflated debt position and lack of any strong growth catalyst further impel NYSE to strategize its business operations as well as lower its operating and capital costs.
Moreover, the ongoing market volatility, currency fluctuations and intense global competition has been weighing on the trading volumes, a key revenue source for NYSE, over the past several quarters. Restricted top-line growth has also been nibbling into the earnings and margins of the company. The financial services technology sales are also experiencing a challenging period.
Although NYSE is yet to confirm reports on the sale of the MCX stake, we believe a business restructuring to concentrate on core efficiencies and retain market share in such operations appears a reasonable point of action for the company. A risky financial and operating leverage could also shake investor confidence, and call for an appropriate check and control processes instantaneously.
While NYSE carries a Zacks Rank #3 (Hold), other outperformers of the financial sector include Moody’s Corp. (MCO - Analyst Report), Fleetcor Tech Inc. (FLT - Snapshot Report) and Vantiv Inc. (VNTV - Snapshot Report) all ofwhich carry a Zacks Rank #1 (Strong Buy).