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NYSE Merger Would Be Big for Goldman

The investment bank could realize more than $100 million from the exchange's proposed union with Archipelago.

April 28, 2005|From Bloomberg News

Goldman Sachs Group Inc.'s financial reward for arranging the New York Stock Exchange's purchase of Archipelago Holdings Inc. now tops $100 million.

Archipelago disclosed for the first time this week Goldman's $3.5-million advisory fee and the number of NYSE seats it owns. The value of those 21 seats has risen by more than $20 million since the deal was announced last week. Meantime, Goldman's stake in Archipelago has jumped by more than $84 million as the stock surged.

The gains underscore Goldman's role on all sides of the transaction, as a shareholder of Archipelago, member of the Big Board and advisor to both. The firm's biggest Wall Street rivals, including Merrill Lynch & Co., were excluded from any assignments stemming from the purchase, which would turn the NYSE into a publicly traded company.

"Goldman makes out very well on all sides of the deal," said James Ellman of San Francisco-based Seacliff Capital, which holds shares of Goldman. "This is a home run financially, if the deal closes as proposed."

Goldman's stakes in both institutions would give it 5.7% of the combined company, to be called NYSE Group Inc. NYSE Chief Executive John Thain used to be president of Goldman, the world's No. 3 securities firm.

Shares of Archipelago rose 99 cents Wednesday to $28.49 on the Archipelago Exchange. Goldman climbed $2.04 to $107.76 on the New York Stock Exchange.

In the transaction, Big Board members would swap their 1,366 seats for 70% of NYSE Group. Archipelago shareholders would get the rest.

At that price, NYSE members would get about $2.3 million in stock for each seat. The exchange also plans to pay out almost $300,000 in cash per seat.

Goldman's 21 seats would be worth $54.5 million, up $20.5 million from April 15, the date of the last private sale of an NYSE membership before the merger announcement. A seat sold that day for $1.62 million.

Meantime, Goldman's 15.5% stake in Archipelago has risen about $84.7 million to $208.1 million. The NYSE hasn't disclosed how much it is paying Goldman for advice on the deal.

Merrill Lynch and Lehman Brothers Holdings Inc. were among the firms to send representatives to a meeting this week with billionaire and former NYSE board member Kenneth Langone, 69, who's considering making a bid for the Big Board.

Goldman spokesman Lucas van Praag has dismissed suggestions that the firm had any conflicts of interests. The NYSE- Archipelago transaction has had "total transparency," he said.

Goldman CEO Henry Paulson, 59, was among the first on Wall Street to spot the promise of Archipelago. Goldman took a 25% stake in the company in January 1999. Paulson then hedged his bets in 2000 by buying Spear, Leeds & Kellogg, one of the seven firms that referee trading on the Big Board's floor.

Archipelago's disclosure, in a filing with the Securities and Exchange Commission late Tuesday, shows that Goldman was mindful of the potential for accusations of conflict. "You hereby agree not to claim that Goldman Sachs has a conflict of interest," Goldman wrote in a letter to Archipelago CEO Gerald Putnam that was included in the filing.

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