The proposed merger between Euronext and the New York Stock Exchange (NYSE) took a giant step towards reality in December, with Deutsche Boerse calling off its bid for Euronext and regulators from the countries in which Euronext has hubs: France, Belgium, Portugal, the United Kingdom and the Netherlands, agreeing not to block the deal as long as the new exchange maintains the regional hubs — a condition that is already enshrined in the merger agreement. Theoretically, the next test comes on Dec. 19, when Euronext shareholders vote on the merger offer. But with all major shareholders already behind the deal, that should be little more than a formality.
What is still not clear, however, is whether the European Commission itself will let the deal go through on competitive grounds.
“Americans should be advised to remember that this is a highly political enterprise,” says Clem Chambers, CEO of stocks and investment Web site ADVFN in London. “It’s possible that regulators in Brussels could say, ‘We don’t like silos, so you’ll have to spin off Liffe,’ and the new venture will have no futures arm.”
He also warned of a backlash from Brussels if the feeling emerges that American exchanges have taken over the European equity exchanges. “I wouldn’t be surprised to see a movement towards building a European champion to compete with America,” he says. And, as if to prove the point, Deutsche Böerse supervisory board boss Kurt Viermetz slammed European authorities for failing to nurture a merger between Deutsche Böerse and Euronext.
“One remains flabbergasted that neither the European Commission nor the Ecofin (European economic and finance ministers) have ever expressed a policy direction that would have encouraged the exchanges to get together,” he said. “The Euro zone badly needs deeper and more fungible pools of liquidity if it wants to compete successfully with London, New York and Chicago.”
Meanwhile Deutsche Böerse says it will concentrate on growing organically, but Citibank analyst Daniel Garrod says the company will be back on the buying path soon. “An acquisition of listed Spanish exchange, BME, would be attractive,” he says. “BME’s logical partner is Deutsche Böerse due to the similarities between their business models; both are combined equities and derivatives exchanges, both operate vertical silo models and both in-source the majority of their IT capabilities.”