NEW YORK – A group of seat holders on the New York Stock Exchange, led by billionaire investor and former NYSE director Kenneth Langone (search), are attempting to mount an effort to purchase the Big Board and override the exchange's announced merger with all-electronic marketplace Archipelago Holdings Inc. (AX), sources close to the effort told The Associated Press.
Langone called several executives last week to assess their interest in such a proposal, according to people with knowledge of the effort who spoke Sunday on condition of anonymity.
Many Wall Street insiders are angry with the terms of the deal, which Langone and his backers feel are too generous to Archipelago and do not represent the true value of the exchange. In addition, there is concern about perceived conflicts in the deal for Goldman Sachs Group Inc., which owns seats on the exchange and has a stake in Chicago-based Archipelago.
Goldman Sachs was involved in the merger negotiations as an adviser to both Archipelago and the NYSE (search). The Wall Street firm brought Archipelago public in August 2004, receiving $1.7 million in fees for helping underwrite the stock offering. Goldman, an early investor in the all-electronic market, also owns 15.5 percent of the company's outstanding shares.
On the NYSE side, Chief Executive John Thain (search) is a former Goldman executive who oversaw the firm's investment in Archipelago, Archipelago CEO Jerry Putnam told The Associated Press in an interview last week. And Goldman Sachs Chairman Henry Paulson Jr. was an NYSE board member until late 2003.
The Journal initially reported that Langone and other seat holders may seek controlling interest in Archipelago to derail the merger, but the sources close to the effort told AP that no such takeover of Archipelago appeared to be in the works.
A Langone spokesman had no immediate comment Sunday. Langone told the Journal that the NYSE "represents a potentially great investment opportunity," but did not quote him further.
NYSE spokesman Ray Pellecchia had no comment on the reports.
On Wednesday, the NYSE and Archipelago announced a merger agreement that would create a new publicly traded company, NYSE Group Inc. The move would launch the NYSE into electronic trading and end its two-century history of being owned by its seatholders.
Goldman holds seats on the exchange through its Spear, Leeds & Kellogg LLP specialist firm. Combined with its Archipelago stake, Goldman Sachs would end up with a stake of less than 5 percent in the new company, the Journal reported.
A Goldman Sachs spokesman told the newspaper the deal posed no conflict for the company.
"If the clients don't think there is a conflict, there is no conflict," the unidentified spokesman said.
The NYSE's 1,366 seat holders, its current owners, will receive $400 million in cash and 70 percent of the shares in the new company, while Archipelago's shareholders will retain 30 percent of the combined company.
Using the value of the NYSE's latest seat sale — $1.8 million — as a guide, the NYSE is roughly valued at $2.45 billion. Archipelago is valued at more than $840 million, based on its closing price before the deal was announced.
With that as a baseline, each seat holder could receive about $2.7 million — slightly higher than the highest price paid for a seat, $2.65 million, in 1999.
Langone is chairman of investment firm Invemed Associates LLC and is a co-founder of The Home Depot Inc. He is worth an estimated $1.2 billion, according to the latest Forbes magazine ranking of billionaires.
He has called top executives at Merrill Lynch & Co., Bear Stearns Cos. Inc., JPMorgan Chase & Co., and Lehman Brothers Holdings Inc., with nearly all of them willing to discuss the idea further, Newsweek reported.
Langone has also been at the center of the NYSE's controversy surrounding former Chairman and CEO Richard A. Grasso (search), who left the Big Board in September 2003 amid controversy over his $187.5 million pay package. Paulson and Langone butted heads over Grasso's departure as well, the Journal reported.
Langone was named along with Grasso in a civil lawsuit filed last year by New York Attorney General Eliot Spitzer, who is seeking $12 million in damages from Langone for allegedly misleading his fellow board members about the scope of Grasso's pay.