A Non-Profit IPO?
The New York Stock Exchange and the Nasdaq Stock Market are considering
plans to become for-profit companies and to issue stock. These companies will
be very valuable. Who gets the shares?
Although both the NYSE and Nasdaq are non-profits (meaning that earnings are
not distributed to owners), their ownership structures are clear. The NYSE is
owned by its 1,366 seatholders--brokerage houses that have paid for the right
to trade on the exchange. Nasdaq's owners--the roughly 6,000 members of the
National Association of Securities Dealers--include every firm licensed to
trade securities.
As with any IPO, shares would be issued representing 100 percent of the
value of the company. Current owners would get some of these shares: NYSE
members would exchange their seats for stock, and NASD members and listed
companies would be able to purchase shares before any public offering. The
remaining shares would be issued to the public. Money from the initial sale
would go into the new companies' treasuries. The exchanges say they need the
money to expand and compete with upstart high-tech rivals. Once they are
normal companies, the exchanges can issue more stock or bonds at any time; it
is much harder for a non-profit entity to raise money. Nasdaq may also
distribute shares to its listed companies, as a reward and incentive for
listing with Nasdaq. Shares that are sold or given away would, of course,
reduce the current owners' share of the new company.
Nevertheless, their ownership interest in the exchanges may turn out to be
quite valuable. Estimates of the NYSE's potential market capitalization (total
stock value) range from $6 billion to more than $15 billion. The 1,366 NYSE
members have paid between $100,000 and $2.5 million for their seats. But a
1/1,366 share of $6 billion is $4.4 million.
Why don't more non-profits make the switch? For one thing, most non-profit
organizations are not actually profit-making businesses. Investors are
salivating for a piece of the New York Stock Exchange. But even in the current
IPO frenzy, there wouldn't be much of a market for shares in, say, the ACLU or
your local soup kitchen. Second, most non-profits (particularly charities) are
not owned by anybody. In fact, this is a requirement for a non-profit that also
wishes to be tax-exempt: The organization's assets must be dedicated
permanently to charitable purposes. The trustees of the Metropolitan Museum
could turn it into a for-profit company if they wanted to, but first they would
have to give away all its artwork, building, and endowment. Unlike the stock
exchange members, they would not get any of the shares themselves. And if the
new company made a profit, it would have to pay taxes.
