Exchange operators Deutsche Börse and NYSE Euronext have entered into a business combination agreement following approval from both companies' boards.
Under the agreement, the companies will combine to create the world's largest global exchange group. The exchanges said the combined entity would offer clients scale, increased operational and capital efficiencies and an enhanced range of technology and market information solutions.
Each of the group's national exchanges, including those in Amsterdam, Brussels and Lisbon, will keep its name in its local market and all exchanges will continue to operate under local regulatory frameworks and supervision. The combined group will work closely with regulators in all markets to facilitate transparency and standardisation of capital markets globally.
The combined group claims it will have combined 2010 net revenues of
€4.1 billion/US$5.4 billion and earnings before interest, taxes, depreciation and amortisation (EBITDA) of €2.1 billion/US$ 2.7 billion, becoming the world's largest exchange group both by revenue and EBITDA. Based on 2010 net revenues, the combined group will earn approximately 37% of total revenues in derivatives trading & clearing, 29% in cash listings, trading & clearing, 20% in settlement & custody and 14% in market data, index and technology services.
The group will have dual headquarters, near Frankfurt and in New York. It will be led by a one-tier board with 17 members – 15 directors plus the chairman and the CEO. Of the 15 directors, 9 shall be designated by Deutsche Börse and 6 by NYSE Euronext. Reto Francioni, currently CEO at Deutsche Börse, will be chairman, and will also be responsible for group strategy and global relationship management. Duncan Niederauer, CEO of NYSE Euronext, will retain that position at the combined firm and will lead an executive committee with an equal number of current Deutsche Börse and NYSE Euronext executives.
The four NYSE Euronext executives are Duncan Niederauer, based in New York, Dominique Cerutti as head of technology services & IT, based in Paris, Lawrence Leibowitz as head of cash trading and listings and John Halvey as general counsel, both based in New York.
The four executives appointed to the new board from Deutsche Börse will be Andreas Preuss as head of derivatives, based in Frankfurt, Jeffrey Tessler as head of settlement & custody, based in Luxembourg, Frank Gerstenschlaeger as head of market data & analytics and Gregor Pottmeyer as chief financial officer of the combined group, both based in Frankfurt.
The combination is expected to generate annual cost savings of some €300 million/US$400 million, principally from rationalisation of information technology, clearing, and market operations, as well as from corporate administration and support functions.
In addition, it is expected that the combination will lead to at least €100 million/US$133 million of annual revenue synergies through cross selling and distribution opportunities, increased turnover from liquidity pool consolidation and new products, a progressive introduction of Deutsche Börse's clearing capabilities and expanded scope for technology services and market data offerings.
Cost synergies are expected to be realised at an annual run rate of 25% by the end of the first year following completion, 50% by the end of year 2, and 100% by the end of the year 3. Implementation and restructuring costs are estimated to be approximately 1.5-2.0 times the expected full run-rate cost synergies. The transaction is immediately accretive to adjusted earnings for both NYSE Euronext and Deutsche Börse shareholders.
Former Deutsche Börse shareholders would own 60% of the combined group and the former NYSE Euronext shareholders would own 40%, assuming that all Deutsche Börse shares are tendered in the exchange offer.
The transaction is subject to approval by holders of a majority of the outstanding NYSE Euronext shares and to a 75% acceptance level of the exchange offer to Deutsche Börse shareholders as well as approval by the relevant competition and financial, securities and other regulatory authorities in the US and Europe, and other customary closing conditions.
The transaction is expected to close at the end of 2011.