By JACOB BUNGE And WILLIAM LAUNDER, February 09, 2011
NYSE Euronext and Deutsche Börse AG confirmed that they were in advanced merger talks, in a combination that would create one of the world's largest share- and derivatives-trading platforms.
Duncan Niederauer, chief executive of NYSE Euronext, would serve as CEO of the combined entity, according to a statement from the companies confirming the discussions. The company would have dual headquarters—in New York and Frankfurt—with an executive committee equally drawn from both organizations. Reto Francioni, Deutsche Börse's CEO, would become chairman and be based in Frankfurt.
No deal has yet been reached, according to the companies.
A person familiar with the deal said the transaction was set to be announced next Tuesday, but they were concerned about leaks and put an announcement out Wednesday.
The announcement followed temporary halts in trading of shares in both companies, and came just hours after the London Stock Exchange Group PLC and Toronto-based TMX Group Inc. agreed on a "merger of equals" that would create a trans-Atlantic group heavy in resource and clean-energy listings, while bolstering trading-technology partnerships.
Shares of NYSE Euronext soared as much as 20% after they resumed trading. In early Wednesday afternoon trading, Euronext was up $4.52, or 14%, to $37.93. Deutsche Börse's shares gained $7.51, or 9.6% to $85.90.
Shares of other operators also advanced. CBOE Holdings Inc., for years seen as a takeover target, surged 7.2% to $26.22 , while Nasdaq OMX Group Inc. gained 5.4% to $27.24. CME Group Inc. rose 2.4% to $308.33. IntercontinentalExchange Inc., which earlier reported its fourth-quarter profit rose, increased 3.9% to $122.80.
The biggest hurdle for an NYSE-Deutsche Börse likely will be securing approval from European regulators, which have raised objections to proposed combinations of share-trading platforms on the continent in recent years.
NYSE Euronext owns the New York Stock Exchange, stock exchanges in Paris, Amsterdam, Brussels and Lisbon as well as the NYSE Liffe derivatives market. Deutsche Börse owns the main German stock market and half of Eurex, another large derivatives market. Its market value is $10.86 billion, compared to $9.18 billion for NYSE Euronext. By comparison, London Stock Exchange has a stock-market value of about $3.94 billion and TMX has a market value of about $3 billion.
A tie-up would strengthen both firms' derivatives business—a focus for both operators amid continued incursion into stock-trading business from smaller electronic competitors.
Linking Deutsche Börse's bond futures with the gilt futures offered on NYSE Euronext's U.K.-based Liffe market would give the combined exchange vast sway over heavily traded interest-rate futures contracts in the region, creating a formidable competitor to Chicago-based CME Group Inc., which runs the dominant U.S. interest-rates franchise.
The combination would also bolster positioning in U.S. stock-options trade. NYSE Euronext's two options platforms, combined with Deutsche Börse's International Securities Exchange market, amounted to about 40.5% of the U.S. options market last month. The business has continued to expand throughout the financial crisis and ensuing years, amid hiccups in stock and futures trade.
Traders will be watching to make sure a combined entity doesn't use its influence to drive up fees, said Joseph Cangemi, chairman of the Security Traders Association. "With this all happening around us and the small disappearing, the big cannot take advantage of their size and we need to monitor that," he said.
However, he said the expected merger makes logistical sense, given the global nature of trading.
The deal could also benefit NYSE Euronext, given its recent investment in two data centers: one in Mahwah, N.J., and one near London. "Now they have two giant distribution networks on both sides of the Atlantic and those access points are robust, big and deep," Mr. Cangemi said.
The deal also turned attention to Europe, where two major electronic operators, BATS Global Markets and Chi-X Europe, are in discussions on their own possible combination.
"You kind of have to rethink what this does in terms of the pan-European platforms. The European side is going to become much more consolidated as a result of this proposal," said Adam Sussman at Tabb Group.
"You can also look at this vis-à-vis the fact that BATS and Chi-X Europe are in exclusive talks, and how will the synergies that will be ringed out of the NYSE/Deutsche Borse merger help them compete with the potential combination of BATS/Chi-X Europe," he said.
—Aaron Lucchetti, Kristina Peterson, Donna Kardos Yesalavich and Brendan Conway contributed to this article.
Write to Jacob Bunge at firstname.lastname@example.org and William Launder at email@example.com