NYSE Seat Holder Sues Over Merger
A retired New York Stock Exchange floor broker filed suit Monday to force the NYSE to renegotiate its planned merger with an electronic exchange and sweeten the terms for the Big Board’s 1,366 seat holders, or owners.
William J. Higgins of Pine Beach, N.J., lead plaintiff in the class-action suit filed in state court in Manhattan, said that the proposed deal was tainted by conflicts of interest involving Goldman Sachs Group Inc. and was too generous to shareholders of would-be merger partner Archipelago Holdings Inc.
Higgins, a seat owner since 1975, also criticized provisions to grant NYSE executives 5% of the seat holders’ ownership interest and to “lock up” the seat holders’ shares in the merged company -- that is, forbid their sale -- for as long as five years.
“The executives charged with overseeing the exchange have abandoned their duty to its membership in striking this lopsided deal,” Higgins said in a statement.
The NYSE “has reviewed Mr. Higgins’ complaint and found it completely without merit,” said spokeswoman Diana DeSocio. “We are proceeding with the merger as proposed.”
A Goldman Sachs spokesman said the firm doesn’t comment on pending litigation.
Defendants in the suit are the NYSE, Goldman Sachs, NYSE Chief Executive John Thain and the exchange’s 10 independent directors.
Thain, former president of Goldman Sachs, unveiled the merger proposal April 20, saying it would help the NYSE stay competitive by developing a hybrid of Archipelago’s fast-growing electronic trading system and the Big Board’s traditional face-to-face system. In the process, he said, the NYSE would speed its transition into a for-profit, publicly traded company.
Under the deal, NYSE seat holders would divide $400 million in cash plus shares representing 70% ownership of the new company. Archipelago holders would get the remaining 30%.
But Higgins and others quickly attacked the deal as unfair. They criticized Goldman Sachs, a 15.6% owner of Archipelago and holder of 29 NYSE seats, for serving as advisor to both the NYSE and Archipelago.
Higgins did not specify in his suit what ownership split would be fair. His attorney, Jay W. Eisenhofer, said in an interview that “there has been public comment that 90%-10% would be appropriate.”
Former NYSE director Kenneth Langone, who is mulling over a competing bid, declined to comment on the lawsuit. Before deciding whether to launch his counteroffer, Langone is awaiting the results of an NYSE valuation study he commissioned, spokesman Jim McCarthy said. He said the results could come as early as this week.
Archipelago shares closed at $32.87 on Monday, up 37 cents on the Pacific Stock Exchange, giving the company a total market value of $1.55 billion. At that level, the combined company would be valued at $5.17 billion.
Toronto money manager Thomas S. Caldwell, whose firm has purchased 13 NYSE seats over the last two years, said that while Higgins has made some apt criticisms of the deal, “legal action at this point is precipitous and not overly productive.”
He said the full terms of the deal wouldn’t be known until the NYSE released a formal prospectus, expected within the next few weeks.
