TAKE THIS DEAL AND...

Ken Langone had more than a passing interest in the news that flashed across the TV screen in his Manhattan office a couple of weeks ago--that the New York Stock Exchange was planning to become a public company by merging with the electronic trading firm Archipelago. Langone, after all, is a former NYSE board member and owns a seat on the exchange that, because of the deal, had just jumped in value by about 50 percent, to $2.5 million. But what really caught his eye were the deal's terms: 30 percent of the 213-year-old Big Board's value would go to an upstart computerized trading system. "Why give a 'black box' 30 percent of one of the greatest brand names?" he recalls asking colleagues. He was also troubled by the $40 million breakup fee if either side scuttled the deal: "Why would you want to prevent someone from making a higher bid?"

He grew even more skeptical after jotting down the NYSE's various assets: valuable land in lower Manhattan, proprietary information, modern technology and that great brand. He figured they were easily worth more than the $3 billion value put on the NYSE by the deal. But what really made Langone angry was the many roles of Goldman Sachs: it was the deal's investment banker, and it owns seats on the exchange and a 15 percent chunk of Archipelago. John Thain, the NYSE's CEO, was also a former top Goldman exec. "There are conflicts everywhere," Langone says. "They must be leaving money on the table."

Langone then called his network of Wall Street CEOs and other deep-pocketed investors like Stan Druckenmiller and found they shared his concerns. With their promise of at least an interest in a possible rival bid, Langone went public with his gripes and his plans for a rival bid last week. To be sure, his effort is a long shot--he needs financial backers, who are waiting to see details of his plan, which he expects to deliver this week. But at the very least, he's thrown a wrench into what many assumed was a done deal, and is fulfilling his role as a kind of inside-outsider on Wall Street. This son of a plumber, who worked on a road crew filling potholes during his college days, has the money to make him a player in financial circles (about $3 billion from cofounding Home Depot, and other investments). But he also remains an entrepreneur, unlike those who live off the deals of others. "People were moaning about the various conflicts, but I did something about it," he told NEWSWEEK in his first extended interview since launching his counterattack. "A lot of people talk about the weather; I sell umbrellas."

He's selling this latest umbrella hard. Langone said last week he was fielding calls from large investors. He declined to name them, but NEWSWEEK has learned that the Carlyle Group and SAC Capital, run by hedge-fund manager Steven Cohen, have called (Carlyle and SAC declined to comment; a person close to Carlyle said it was leaning against making any investment). Langone says the deal has to work financially. "I'll be the first to tell Thain that his deal is a good one if our numbers don't add up, and we'll just walk away," Langone says. "But so far I like what I'm hearing."

Not everyone likes to hear what Langone has to say, though. He's blunt and outspoken. He has also supported former NYSE chairman Richard Grasso, and ran the committee that approved much of Grasso's $140 million pay package that led to his ouster in 2003. (New York state Attorney General Eliot Spitzer has filed a civil suit against Langone, saying he misled the board on Grasso's pay--a charge he denies.)

Langone has also made no secret of his disdain for Goldman CEO Hank Paulson, who led the effort to oust Grasso. But he says his current effort is about making money. He thinks the NYSE-Archipelago deal, which calls for a hybrid system of electronic trading and specialists roaming the exchange, is just delaying the inevitable. His message to trading-floor specialists: "In five years, there won't be a floor.'' In other words, they may be out of work. And Langone? At 69, he's showing no signs of slowing down. "I'm still going strong," he says. Perhaps too strong for some.

© 2005