Warren Buffett’s proposal to take over NYSE Euronext, while rejected in favor of a higher offer last year, is boosting optimism that the world-famous stock picker sees a rebound in trading from a four-year low.
The bid for the New York Stock Exchange owner, made in November and disclosed yesterday in a government filing, came amid signs investors are returning to stocks after volume fell 18 percent in 2012. U.S. equity funds took in a record $3.1 billion at the beginning of this year after investors pulled about $250 billion since 2009, based on data from EPFR Global.
The value of American equities has risen by $1 trillion this year as the biggest January rally since 1987 pulled the Standard & Poor’s 500 Index within 4.4 percent of its record. Even though IntercontinentalExchange Inc. won NYSE Euronext with its $8.2 billion bid announced in December, Berkshire Hathaway Inc.’s interest may signal exchange earnings are poised to rebound, according to PNC Wealth Management and Tabb Group LLC.
“He’s saying maybe things will turn around and volume will come back,” E. William Stone, chief investment strategist at PNC Wealth Management in Philadelphia, said in a phone interview. His firm manages about $112 billion. “It is a company that just benefits from transactions, and we all know the challenges of stock volume moving away from the exchanges.”
Richard Adamonis, a spokesman for NYSE Euronext, declined to comment. Buffett didn’t respond to a request for comment sent to an assistant.
Berkshire was “Company A” named in a regulatory filing yesterday as making the Nov. 28 bid for NYSE Euronext, said two people with knowledge of the matter who asked not to be identified because the offer wasn’t public. The transaction was conditioned on the exchange operator selling its European derivatives business, according to the filing.
CME Group Inc., the world’s largest futures exchange, also approached NYSE in October last year about a deal with its derivatives business, according to two people familiar with the situation. The Chicago-based exchange, which offered to provide clearing for NYSE’s Liffe U.K. derivatives exchange, and NYSE didn’t start formal negotiations, the people said.
Buffett may have proposed buying the company because the shares are cheap, said Lawrence Creatura, a Rochester, New York- based fund manager at Federated Investors Inc., which oversees about $370 billion. NYSE Euronext traded at 11.6 times reported earnings in November, compared with a multiple of 16.3 for a measure of 25 exchange operators around the world, according to data compiled by Bloomberg.