Frustrated with low valuation, Nasdaq debates options

Long frustrated about the low market valuation of Nasdaq OMX Group Inc, the exchange operator’s management is debating various ideas, ranging from further diversification to radical steps like going private or eventually splitting up the company, said several people familiar with the situation.

In the past few months, the company held talks with private equity firms, including Carlyle Group and Hellman & Friedman, about a possible buyout, two of the sources said. But talks broke down over price disagreements before they got serious, they said.

Nasdaq is no longer in talks with any private equity firms about a deal, these people said, but the company’s management took the interest as a sign investors in general were beginning to see that the company was undervalued.

Nasdaq and Carlyle declined to comment. Hellman & Friedman was not immediately available for comment. Nasdaq is prepared to take even more radical steps if valuations don’t rise, such as separating its trading and technology businesses down the road, one of the sources said.

“To the extent that you are two to three years out and you’ve segmented the businesses, and people are saying I appreciate your sum-of-the-parts analysis, but you are still one enterprise and we will value you at the lowest common denominator of your multiples, then you do some hard thinking,” the person said.

Nasdaq’s management has long said the company was undervalued compared to its peers. The company is considered one of the leanest exchange operators, with strong cost controls, and has diversified its business away from cash equities into less volatile and higher margin technology and data services businesses. Nasdaq operates 23 markets, three clearinghouses and five central securities depositories in the United States and Europe.

In a bid to make its diverse revenue sources clearer to investors, it reorganised its business in January, creating two new segments - one combining its market technology and software units, and the other linking its global data and index units. Nasdaq reported $1.7 billion in revenues last year and has a market value of about $5 billion.