NYSE-Deutsche Borse Deal on Track

Terry Flanagan

NYSE Euronext CEO Duncan Neiderauer affirms that his high-profile deal with Deutsche Borse is still on track despite regulatory uncertainty.

The merger parties received a statement of objections from the EU Competition Commission on Oct. 5, which outlined the concerns surrounding the proposed deal. A written rebuttal was submitted to the commission on Oct. 24, which was followed by a two-day oral hearing on Oct. 27 and Oct. 28.

During the hearing, NYSE and Deutsche Borse gave their perspective regarding the transaction and its potential benefits, and responded to any arguments made by competitors.

“We demonstrated that the competition in our industry is clearly global, and that the merger will enhance the transparency and safety of the markets, as well as facilitating better risk management,” said Duncan Neiderauer, NYSE chief executive in a conference call. “Recent events like MF Global only reinforce the important of systemic risk management.”

“We will be creating an integrated and liquid pan-European financial market for raising capital, to the benefit of both SMEs (small- and medium-sized enterprises) and larger businesses, stimulating job creation and economic development at a critical time,” Niederauer added. “Our derivatives businesses are complementary, and when combined, will give Europe an important counterweight to the established market centers in the U.S. with CME Group, Asia with Hong Kong Exchanges and Clearing, and in Latin America with BM&F Bovespa. For Europe, this is an opportunity that should not be missed.”

The next step in the process will be for the commission to evaluate the rebuttal and the information provided to them at the hearing. The next hearing scheduled for next week in Brussels. on the back of that, we will then determine how to work with them to further narrow and address their remaining concerns.

However, NYSE’s chief made clear that if the regulators ask for too many concessions, then there is a possibility for the two sides to drop the deal.

“As in any deal, at some point the logic of the combination will not hold together if we are asked to give up too much,” said Niederauer. “The industrial logic will not be compromised.”

Record trading volume during August was a strong driver for the third quarter for the exchange operator. Net revenue was up 18% year-over-year to $704 million, the highest level of revenue during any single quarter since 2008. Net income was $186 million, up 54% from last year.

“This was obviously a strong quarter, which benefited from strong trading volumes increasing revenue diversification, disciplined cost control and strong capital management,” said Niederauer. The primary story of this quarter is that our team made substantive progress toward our goal of completing the transformational merger with Deutsche Borse, while simultaneously continuing to execute on our core business strategy.”

Along with Deutsche Borse, which announced that it will conduct a €100 million share buyback by the end of the year, NYSE will conduct its own $100 million share buyback as well. The move is intended to keep the current ownership percentages between shareholders of the two companies the same following the deal’s closure.

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