Deutsche Börse, NYSE Euronext in advanced merger talks

Exchange groups Deutsche Börse and NYSE Euronext have confirmed that they are engaged in advanced discussions regarding a merger.
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Exchange groups Deutsche Börse and NYSE Euronext have confirmed that they are engaged in advanced discussions regarding a merger.

The firms' cautioned that any transaction would be subject to the approval of the two companies' boards, regulatory and shareholder approvals, as well as other customary conditions. An announcement was released after shares in both companies were suspended; NYSE Euronext shares had risen 12% on the day.

In January 2011, the combined equity turnover across Deutsche Börse and the domestic French, Belgian, Portuguese and Dutch markets operated by NYSE Euronext totalled €257.93 billion, representing a pan-European market share of 29.7%, according to Thomson Reuters Equity Market Share Reporter. The largest trading venue by turnover in January 2011 was multilateral trading facility (MTF) Chi-X Europe, which traded €141.9 billion, or 16.37% of European liquidity.

Since MiFID, European exchanges have steadily lost market share to MTFs, resulting in attempts to diversify revenues and pressure for consolidation.

Yesterday, NYSE Euronext announced revenues of €309.2 million from its primary markets business, and €1.81 billion from secondary markets for the full year 2010. The firm earned €797.244 million in derivatives, while its data feeds brought in another €273.32 million and its IT and services division earned some €325.34 million over the same period.

Deutsche Börse's full-year figures for 2010 are due out on 15 February. The latest figures from its report on the first half of 2010 showed it earned €53.4 million from its primary and secondary markets, €251.6 million from its derivatives business, €139.3 million from clearing and settlement and €58.7 million from IT and services up to the end of June.

NYSE Euronext and Deutsche Börse expect to be able to realise approximately €300 million in cost synergies, principally from economies of scale in information technology, clearing operations, market operations and corporate centre functions. In addition they expect to generate substantial incremental revenues from clearing services, product innovation and cross-selling opportunities between the global cash and derivatives businesses.

The firms expect to combine their businesses in all-stock transaction under a new legal entity incorporated in the Netherlands. If fully consummated, Deutsche Börse shareholders would hold approximately 59-60%, and NYSE Euronext shareholders would hold approximately 40-41%, of the combined company's equity.

The combined group would be the world's largest exchange operator by revenues and profit. The firms have said they would continue to operate all exchanges under local regulatory frameworks and supervision, and would work closely with regulators to facilitate transparency and standardisation of global markets.

The combined group would have dual headquarters in New York and Frankfurt. The chairman would be Reto Francioni, based in Frankfurt, and the CEO would be Duncan Niederauer, based in New York. The new company would have an executive committee drawn equally from the current leadership of both companies.

Deutsche Börse and NYSE Euronext have said in a statement that the combined company would create “an important counterweight to the proliferation of alternative trading venues that operate with less transparency and far fewer regulatory requirements.”

The statement also said that trading clients would benefit from savings available through the creation of a common IT infrastructure, simplified clearing processes, capital efficiencies and the formation of a more liquid, pan-European, pan-euro, regulated market. Shareholders of Deutsche Börse and NYSE Euronext would benefit from a more attractive revenue mix, accelerated earnings growth and from cost savings.

The parties have said they plan to make no further statement about the discussions until they are terminated, or until a definitive agreement is reached.

On 1 February NYSE Euronext announced that it would be breaking from an agreement to use tick sizes that had been set across European trading venues under an agreement brokered by the Federation of European Securities Exchanges in 2009.

The exchange cited changes to the competitive landscape as its motivation, and rival venues said it had referred to a loss of market share to other venues, specifically dark pools. But Paul O'Donnell, chief operating officer at multilateral trading facility BATS Europe said the data he had seen did not show this pattern and said he had asked for the evidence.

Then on 6 February MTF Turquoise, which is operated by the London Stock Exchange Group, announced a pricing promotion for all NYSE Euronext European stocks traded on its integrated order book, in a bid to capture market share from its parent's European rival.