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Financier Ken Langone is lining up some high-powered help to advance his bid to purchase the New York Stock Exchange.
NEWSWEEK has learned that Langone has contacted the former Credit Suisse First Boston chief executive John Mack to ask him if he would be interested in running the NYSE if his transaction is successful. Mack did not return a call for comment. For now, Mack has agreed to be the spokesman for Langone's effort, NEWSWEEK has learned.
Mack is a possible addition to a team that Langone is rapidly putting in place as he works to build support for his bid. Another high-profile investor who has agreed to provide money is Stanley Druckenmiller, a hedge fund manager. He's apparently agreed to invest $200 million into the venture. Druckenmiller didn't return a telephone call for comment. A spokesman for Langone had no comment.
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NEWSWEEK was first to report on its Web site Sunday morning that Langone was interested in putting together a coalition of Wall Street firms to purchase the NYSE, following the Big Board's announcement that it would merge with electronic-trading outfit Archipelago and then become a public company. Langone, however, believed that seatholders at the exchange can get a better deal than the one being proposed. He also said the reason the seat holders are getting shortchanged is because of the multiple--and, to him, conflicted, roles--played by investment bank Goldman Sachs.
Goldman was not only the merger's investment bank, but it is a major shareholder of the NYSE. Perhaps most galling for Langone: the company owns a chunk of Archipelago. A Goldman spokesman said all its conflicts were disclosed to its client, the NYSE. But Langone said the multiple roles will result in too much of the deal's value being transferred to Archipelago. As evidence, he cited the sharp rise in shares of Archipelago. NYSE chief executive John Thain was also a former top executive of Goldman Sachs, which will automatically become a shareholder in NYSE if the deal goes through.
Under normal circumstances, Langone's bid would be a long shot, but these aren't normal circumstances. Langone, himself, is no big fan of Goldman's CEO Hank Paulson, who led the effort to oust his friend Richard Grasso as head of the stock exchange in 2003, following disclosure of Grasso's massive pay package. But following the announcement of the merger, many top executives on Wall Street began grousing about Goldman's multiple roles and whether the NYSE got the best deal possible. Stan O'Neal, the chief executive of Merrill Lynch, which provides as much as 10 percent of the "order flow" trading volume on the exchange, placed an angry call to Thain about the Goldman issue. A spokesman for O'Neal confirmed the telephone call; a spokesman for Thain had no comment.
Also, Langone is a force to be reckoned with. He has deep contacts on Wall Street, owns his own investment bank, is a seat holder of the NYSE and is the co-founder of Home Depot. He's known as an entrepreneur and a long-term investor who knows how to take risks and make money. His net worth is estimated at $3 billion and he's willing to put in several hundred million of his own money into his NYSE bid along with Druckenmiller.
Meanwhile, Langone has managed to tap into the anger surrounding Goldman's role in the deal. Late last week, he contacted O'Neal as well as James Cayne, CEO of Bear Stearns; Richard Fuld, CEO of Lehman Brothers; Jamie Dimon, president of JP Morgan Chase; and Kenneth Lewis, CEO of Bank of America. All said they were interested in hearing Langone's proposal, said a person with knowledge of the conversation.
At the moment, Langone hasn't finalized his plan for his alternative bid, but he has hired an investment banker to crunch the numbers. According to people who know Langone, his deal could include a combination of cash, stock or bonds. But one thing he's certain of: He can offer the roughly 1,300 NYSE seatholders, which must approve any deal by a 2/3 margin, a better package. He says Archipelago was given approximately 30 percent of the value of the merger, but should be getting next to nothing because they trade only a few stocks through its electronic network that are listed on the exchange, where specialists bid on stocks.
Langone has told people that by killing the NYSE-Archipelago merger, a new exchange can emerge, one that relies more on electronic trading than the "hybrid" model that Thain and Goldman are now proposing in which human specialists will still play a role in floor trading.
Editor's note: The meeting is being held at Stanley Druckenmiller's headquarters at 40 West 57th street at 2pm.
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