Billionaire investment banker Kenneth Langone met yesterday with leaders of some of the nation's largest investment banks who feel that...

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NEW YORK — Billionaire investment banker Kenneth Langone met yesterday with leaders of some of the nation’s largest investment banks who feel that the proposed merger of the New York Stock Exchange (NYSE) with Chicago-based Archipelago Holdings undervalues the Big Board.

The group of about 10 said they would “undertake a process” to determine how to increase the value of the NYSE in any transaction that would turn it into a publicly traded company.

One obvious option might be to make a counteroffer to last week’s proposed $4.7 billion deal that would create a publicly traded company called NYSE Group. But so far, the group has stopped short of saying it will make such an offer.

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The NYSE-Archipelago marriage would bring together the prestige and clout of the world’s best-known exchange with the growing electronic trading prowess of Archipelago.

Former Morgan Stanley and Credit Suisse First Boston chief John Mack agreed to act as spokesman for the banking firms. Mack could not be reached for comment yesterday.

Among those who attended the group’s meeting at the midtown Manhattan office of hedge-fund manager Stanley Druckenmiller, who is backing the effort, were representatives from Merrill Lynch, Lehman Brothers, JP Morgan, Bank of America and Bear Stearns.

Much of the group’s criticism was aimed at investment bank Goldman Sachs Group, which advised both the NYSE and Archipelago.

Langone’s supporters point out that not only is NYSE Chairman John Thain a former Goldman Sachs president, but that the firm holds a 15.5 percent stake in Archipelago and owns the trading firm Spear, Leeds & Kellogg, which holds three seats on the exchange.

Bloomberg News calculated that since the deal was announced on April 20, Goldman’s stake in Archipelago has jumped $81 million, to $219 million. Goldman stands to own nearly 5 percent of the new company.

Archipelago paid Goldman $1.7 million for underwriting the company’s stock offering last year.

Goldman Sachs spokesman Lucas Van Praag defended the firm’s role, arguing that most major financial institutions own a seat on the NYSE.

“Investment banking invariably involves conflicts of interest. The issue is how you manage them,” he said. “We believe that by being totally transparent, the conflict issue has been addressed.”

Van Praag added that the NYSE and Archipelago approached Goldman to value both entities, which in turn received independent fairness opinions about the transaction from outside firms: Greenhill for Archipelago, and Lazard Freres on the NYSE.

Archipelago had nothing to say about the latest development.

On news of the bankers’ meeting, Archipelago stock fell 8.4 percent to close at $27.25 a share.

Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, said he was surprised that NYSE’s Thain would permit Goldman Sachs to advise both sides of the deal, especially involving an institution as important to the country’s financial workings as the NYSE.

“After all that Wall Street went through, this does raise questions,” Elson said. “It’s something you’d think they would be very careful not to take place.”

This is not the first time Langone and Goldman Sachs have had verbal spats. Two years ago, Langone feuded with Goldman Sachs Chief Executive Henry Paulson Jr., who was among many to call for former NYSE Chairman Grasso to resign from the his top post following the public outcry over his $187.5 million pay package. Langone was the head of the NYSE compensation committee that approved Grasso’s contract.

In September 2003, the exchange’s board forced Grasso to resign.

Paulson had also been critical of Grasso’s reluctance to move the exchange toward electronic trading. Thain, who took over as chairman in January 2004, made electronic trading one of his top priorities.

Outspokenly supportive of Grasso, Langone angrily left his position as a NYSE director in October 2003 after the exchange’s interim chairman, John Reed, the former Citigroup chairman, launched an overhaul of the market’s corporate governance.

In May 2004, New York Attorney General Eliot Spitzer, citing the NYSE’s status as a not-for-profit organization, sued both Grasso and Langone to force the former exchange chairman to return more than $100 million of his pay. That trial is not expected to begin until early next year. Spitzer also is seeking $12 million in damages from Langone in connection with the exchange’s approval of Grasso’s compensation package.

If support for a counter-bid does take hold, observers agree Langone, a co-founder of Home Depot, is likely to take a lesser role in the effort.

While Langone’s personal wealth is estimated at $1.2 billion, according to the latest Forbes ranking of billionaires, his investment firm, Invemed Associates, remains under investigation by the brokerage regulator NASD. The investigation involves a company that the firm helped take public in 2003.