NYSE Braces for a Post-Nortel and Post-Lucent Trading World

Stock Tickers: NYX, ALA, LU, NT, CIEN, JDSU

The NYSE (NYX-NYSE) is gearing up for a reverse split on Nortel Networks (NT) and gearing up for a combined merger of Alcatel (ALA) and Lucent (LU).  This translates into the most likely scenario that traders and investors will inadvertently put their trading volume away from those names and towards other stocks.

Kissing Nortel Goodbye

Investors are gearing up for tomorrow’s reverse stock split when Nortel (NT) will trade reflecting its 1 for 10 reverse stock split.  When you walk in to work and see NT indicating up in the $20’s, don’t be fooled into thinking a private equity firm came in and made an outrageous bid.

A reverse stock split is the same sort of corporate trickery and chicanery that others have ventured on in the past, and the same sort of swap that JDS Uniphase (JDSU) and Ciena (CIEN) have recently embarked on.  This isn’t meant to be mean to companies, but it is a token warning for investors who don’t want to stand in the way of some serious trading around these events. 

Lucent Turns French

The real loser in this is ultimately going to be the NYSE itself.  It isn’t so much that it is losing just NT trading volume, but the pending merger has closed and the combined Alcatel-Lucent will trade tomorrow under the new ticker "ALU."

The new company Alcatel-Lucent is incorporated in France with executive offices located in Paris. The company will be traded on Euronext Paris and the NYSE from December 1st, 2006 under a new common ticker (Euronext Paris & NYSE: ALU). As a result of the merger, each outstanding share of Lucent common stock has been converted into the right to receive 0.1952 of an Alcatel ADS. In connection with the merger, Alcatel has issued approximately 878 million shares, which is equivalent to the total number of ADS to be issued to the holders of Lucent common stock. Following the completion of the merger, approximately 2.31 billion ordinary shares of Alcatel-Lucent are outstanding.

NYSE Braces for Volume Changes

Nortel (NT) trades on average about 24.5 million shares per day, and has traded 48 million shares today.  Alcatel (ALA) trades only about 3.4 million shares on an average day, and has traded about 22 million shares so far today.  Lucent (LU) trades 41 million shares on average, but has traded over 200 million shares today.  Almost every day these two companies trade in the top 5 as far as total NYSE trading volume as far as number of shares changing hands, and now the NYSE is going to see two of the most active share names drop off the immediate radar from much of the US trading public.  Part will be based on price and part will be the non-US domicile.  That is unfortunate but more than likely the truth.

This doesn’t mean the change will go into effect immediately because many traders and investors will have to play catch-up.  But the volume in such names usually does change in a fairly short time period.  The drop in volume certainly doesn’t mean volume will go to zero, but on just a nominal basis the combined ALU “could ultimately trim off about 25 million shares or more per day if there is no new specific focalization plan out of the combined company (Alcatel-Lucent) and the NYSE.  Coupled with a direct share to share comparison for Nortel potentially losing say 20 million shares, the NYSE could theoretically see 45 million or so shares less on an average trading day.  This is roughly 2% of the share count of you just round to the nearest number.

This 45 million share loss is an estimate only and shouldn’t be used as gospel.  If you pretend that it is an exact number for calculations this probably won’t be noticed at all on active news days but will be felt on dead days when those are the only two that traders are still hitting the Buy and Sell buttons on their trading screens.

Jon C. Ogg
November 30, 2006

Below is a 6-month chart (from Bigcharts.com) showing how both JDSU & CIEN have traded since announcing and after their reverse splits, and there is a relative performance to the NASDAQ as well.