NYSE to Consider Other Options

Terry Flanagan

With the cross-border merger between NYSE Euronext and Deutsche Borse in jeopardy, the two exchanges will need to consider alternative avenues for expansion.

“It may happen over time, but at some point NYSE might need to pursue some other option if the deal doesn’t go through,” said Richard Repetto, an analyst with investment bank Sandler O’Neill.

The probability of the EU Competition Commission approving the merger is declining rapidly, as reports surfaced that the commission head Joaquin Almunia is expected to recommend blocking the proposed $17 billion merger during a meeting next month. UBS has pegged the probability of the deal going through at 20%.

The chief executives of NYSE and Deutsche Borse, Duncan Niederauer and Reto Francioni, respectively, met Wednesday to discuss the next steps to take in order to salvage the deal. They will likely lobby the remaining commissioners as well as politicians to approve the deal.

“NYSE will have to go to commissioner by commissioner and try to plead their case,” said Repetto. “They will stress that the deal would help capital raising in Europe and help improve macroeconomic conditions, as well as boost Europe’s profile as a financial center.”

It is likely that the only way for the deal to be salvaged is if additional significant concessions are made,. However, NYSE Euronext deputy chief executive Dominique Cerutti has said his company wouldn’t make any new concessions because that would threaten the business logic of the deal, according to reports.

In December, the merger parties submitted a second round of remedies to address any remaining concerns. Among the proposed concessions was the divestiture all of the NYSE Liffe-operated European single equity derivatives business, including those in Amsterdam, Paris, Brussels and Lisbon. They will also offer to whoever ends up purchasing the single equity derivatives business access to Eurex Clearing.

Despite the new round of concessions, the commission’s main concern regarding the dominance the combined entities would have in European derivatives was not addressed. Combined, they would have control of more than 90% of European derivatives trading. Both parties have said that they would not include their Liffe and Eurex units in their remedies, citing that the merger would no longer make sense for them if they were asked to give up too much.

U.S. Department of Justice in late December gave the green light on the proposed merger, contingent on the International Securities Exchange, a unit of Deutsche Borse, divesting its stake in Direct Edge.

NYSE and Deutsche Borse agreed to their $17.7 billion merger in February, with shareholders approving the deal in July. Regulators outlined their objections in a statement in early October, with oral hearings held later that month. Their initial batch of remedies was submitted in mid-November. The companies expect to save as much as $3 billion in capital requirements through the deal, as well as reduce any duplicative infrastructures and operations.

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