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Nasdaq’s boss wants to buy the Big Board? Be careful what you wish for

The marriage of giants in one industry doesn't always hit the heights

Robert Greifeld, the hard-charging chief executive of Nasdaq, is determined to snatch the New York Stock Exchange away from the Deutsche Boerse.
Bob, are you sure you know what you’re doing?
To be sure, a Nasdaq takeover of the Big Board would be notable if only for symbolic reasons.
For one, vanquishing a decades-long rival certainly would be a Horatio Alger story writ large, even if the current leadership of Nasdaq is motivated solely by the future and not the past. Anyone who has followed Wall Street for any length of time has to be amazed that Nasdaq — which began as a rag-tag collection of over-the-counter market makers swapping stocks — would one day be serious about buying the august, clubby New York Stock Exchange.
But the days of upstart Nasdaq vs. snooty New York Stock Exchange are long since gone. Neither has a virtual monopoly in its niche and neither is an old-fashioned membership organization. As public corporations competing in a fierce international arena, both must answer to shareholders that demand higher quarterly earnings.
Consolidating the two companies would create a huge player in the financial markets business, which would be good for U.S. prestige and even may lead to economies of scale for the merged entity. In the long run, however, who knows?
The annals of American business history are littered with mergers and acquisitions that amounted to nothing — and often less than nothing, if you account for the capital poured down the drain.
If you look at the record, the pairing of two giants to form one super-giant doesn’t always work. We all know what became of the 1968 melding of the Pennsylvania Railroad and the New York Central Railroad: Penn Central, which begat the federally owned and perpetually money-losing Amtrak. (Yes, the small money-making part of the business that became Conrail was eventually sold.)
Nasdaq and the NYSE both are profitable, of course, but the future of the exchange business is probably less predictable than many other businesses.
For one, it’s now a high-tech business where change comes at the rate of the newest app.
Second, markets are international, which means that market operators have to worry about upstarts from Des Moines to Dubai.
And while trading volume keeps ballooning, the slivers that accrue to the marketplace providers keep shrinking.
In short, the marketplace business, no matter how large, may not be such a hot business over the coming years.
Ironically, the story of Nasdaq’s plans in Tuesday’s Wall Street Journal was positioned right next to a story about how Hershey Co. — the loser to Kraft Foods Inc. in last year’s $19.5 billion takeover of British giant Cadbury PLC — actually may have won.
Despite the opprobrium he faced from analysts and shareholders who said he couldn’t get his act together, Hershey chief executive David West stuck to his knitting. Instead of engaging in a bidding war, he pulled out of the contest, cut costs and increased advertising spending.
What happened? Stodgy old Hershey increased sales and profits and saw its stock price rise about 50% since January 2010.
The moral of Hershey’s tale may not apply in Nasdaq’s situation, but if the NYSE acquisition doesn’t work out, Mr. Greifeld’s short-term disappointment may turn into long-term relief.