By AARON LUCCHETTI, February 16, 2011
Deutsche Borse AG and NYSE Euronext have announced the details of their merger, but they have kicked the name issue down the road. Dave Kansas takes a look at the touchy issue of a new name for the combined entity.
Deutsche Börse AG and New York Stock Exchange parent NYSE Euronext unveiled their $10 billion deal to create the world's largest exchange operator. The news came in a heavily choreographed announcement aimed at quelling concerns that the combined company will be too powerful and move control of the Big Board to Europe for the first time in its 219-year history.
But executives were dogged by questions that could make completion of the deal a cliffhanger, ranging from what the giant company will be called to whether its biggest rival, Chicago Mercantile Exchange parent CME Group Inc., is plotting a hostile bid to break up the deal and snag NYSE Euronext's lucrative derivatives business.
Political leaders also reacted cautiously, saying they need more specifics before deciding whether to support or oppose the agreement announced Tuesday.
"There are big hurdles to clear," said NYSE Euronext Chief Executive Duncan Niederauer, who would lead the combined company, in an interview in his office Tuesday before flying to Frankfurt for a series of meetings about the deal. In a joint news conference via webcast, Reto Francioni, the German company's CEO, said: "We have a bumpy road ahead of us, really, to get it done." He is slated to become chairman upon completion of the deal, which the two companies said would occur by year-end.
The deal must be approved by shareholders of both companies and regulators on both sides of the Atlantic, who promised a thorough review but said it is too soon to predict the outcome. Some analysts have suggested Deutsche Börse and NYSE Euronext might be required to shed businesses following antitrust scrutiny.
The Justice Department is gearing up to examine the proposed deal, according to people familiar with the matter, though the agency can't formally launch an investigation until the companies file merger documents.
If the deal goes through intact, the combined company would dominate European trading and global stock listings, giving it an advantage on the CME and other exchanges in the race to deepen ties to fast-growing Asian markets and push deeper into the over-the-counter market.
WSJ's Neal Lipschutz reports on efforts to put the NYSE name first once the NYSE/Deutsche Borse deal closes. Two lawmakers have led the effort, hoping to symbolically maintain New York's status as the world's financial capital.
More Deals in Asia?
Some analysts expect the decadelong consolidation wave among the world's exchanges to lead to more deals in Asia. Meanwhile, exchanges are trying to elbow into the over-the-counter market, now dominated by banks that can trade with each other with less transparency than the buy and sell orders handled by exchanges.
Regulatory changes adopted in the wake of the financial crisis are likely to push more over-the-counter business to exchanges.
For months to come, though, the strategic goals that led executives of Deutsche Börse and NYSE Euronext to rekindle merger discussions late last year are likely to be overshadowed by concerns that include whether control of an icon of American capitalism will pass to a German company.
Insisting It Is a 'Merger'
"You keep saying it's an acquisition," Mr. Niederauer told reporters Tuesday. "It is a merger. … I don't know how many more times we can say that." A joint news release called the deal "a business combination agreement."
Terms of the agreement call for Deutsche Börse shareholders to get 60% of the combined new company, reflecting the Frankfurt company's current stock-market value of about $15 billion, compared with about $10 billion at NYSE Euronext. Executives confirmed that the company would have dual headquarters in New York and Frankfurt, while being led by a management team drawn equally from Deutsche Börse and NYSE Euronext.
Executives were painstakingly evenhanded in describing details of the agreement, even alternating which headquarters city was mentioned first in the same sentence.
But they said a decision on what to call the company could take one or two months. "The name is going to be a very lengthy discussion," Mr. Niederauer said.
In a nod to resistance by some lawmakers after the two companies confirmed last week that they were in talks to combine, Mr. Niederauer said the option of starting the parent company's with Deutsche Börse or its initials has been taken off the table.
U.S. Sen. Charles Schumer (D., N.Y.) reiterated Tuesday that he wants a reference to New York to come first in the combined company's name. "NYSE is one of the most preeminent brands in the financial industry, and there is no reason it shouldn't come first in the new exchange's name," he said in a statement.
Mr. Niederauer said it is also possible that the exchange giant would have a general holding-company name while promoting its units, ranging from the Big Board to the Paris Bourse to the Frankfurt Stock Exchange.
Meanwhile, CME Group, the largest U.S. exchange operator through its ownership of the Chicago Merc as well as the Chicago Board of Trade and New York Mercantile Exchange, continued to weigh its options.
In a statement, the CME played down the likelihood that it would try to derail the agreement—but didn't rule that out. As analysts and investment bankers circulated various scenarios, some pointed to previous exchange deals where a rival suitor emerged.
CME executives like NYSE Euronext's derivatives business, currently one-third of the New York company's revenue. CME has shown no interest in the business of trading stocks or hosting the trading of public companies, which generate half of NYSE Euronext's global revenues.
Those two businesses would be a better fit with Nasdaq Stock Market operator Nasdaq OMX Group, which declined to comment.
"I suspect CME and Nasdaq won't do anything" to break up the deal, said Richard Repetto, an analyst with Sandler O'Neill & Partners LP. "In the end, CME needs to think long and hard about getting into a hostile deal that will just consume resources and not do that much in advancing their story. NYSE-Deutsche Börse isn't an easy deal to close."
A hostile offer by the CME would "be even harder because you have to break up this deal first," he added.
No Call From the CME
Mr. Niederauer said he hasn't heard from CME officials. Deutsche Börse was his first choice, he said Tuesday, noting that the two exchange operators talked for years but couldn't overcome hurdles caused by the much larger stock-market value of the German company.
The gap narrowed last year. "We were both very patient," Mr. Niederauer said.
CME dominates in U.S. exchange-traded futures, but doesn't do as much of that business in Europe, where NYSE and Deutsche Börse both have a big presence. NYSE Euronext and Deutsche Börse said earnings at the combined company would be about 30% higher than CME's annual profits, based on 2010 results.
In an ironic twist, one exchange-industry veteran said, the deal would give the combined company a bigger hand in the European derivatives business that Chicago futures exchanges helped incubate in its early days. The NYSE shunned derivatives until roughly the last decade.
—Thomas Catan and Kristina Peterson contributed to this article. WSJ