From the July 01, 2011 issue of Futures Magazine • Subscribe!

Nasdaq/ICE stand down

It ain’t over til…

The Nasdaq OMX/Intercontinental Exchange (ICE) bid to purchase NYSE Euronext was withdrawn after the U.S. Department of Justice (DoJ) informed them that it would formally challenge a Nasdaq OMX/NYSE Euronext merger on antitrust grounds. However, that does not necessarily end the intrigue.

The DoJ informed the companies that it would file an antitrust lawsuit to block the deal because "the acquisition would have substantially eliminated competition for corporate stock listing services, opening and closing stock auction services, off-exchange stock trade reporting services and real-time proprietary equity data products."

Assistant Attorney General in charge of the DoJ Antitrust Division Christine Varney noted in the letter, "The acquisition would have removed incentives for competitive pricing, high quality of service and innovation in the listing, trading and data services these exchange operators provide to the investing public and to new and established companies that need access to U.S. stock markets."

While a merger of the two largest U.S.-based stock exchanges raised a red flag for the DoJ, so could the merging of Europe’s two largest derivatives exchanges, as would happen with the completion of a Deutsche Börse/NYSE Euronext merger. The European competition authority has yet to rule on the merger but if it would challenge the deal, it would open up an opportunity for ICE to reassert its offer for NYSE Euronext’s European futures business.

ICE Chairman and CEO Jeff Sprecher sparked speculation after saying, "Things aren’t over yet," while speaking on a panel at the IDX International Derivatives Expo. Sprecher later clarified that he was not pursuing the Liffe Exchange.

Regardless of Sprecher’s — who may be getting gun shy of big merger deals — intentions, if the European authorities object to the deal, DB/NYSE would have a dilemma.

However, Keefe, Bruyette & Woods (KBW) analyst Niamh Alexander says they believe the merger will eventually go through, though it is at least four to six months from closing. She says DB/NYSE likely would use CME Group as an example of creating a similar product line.

Alexander says that there would be a low probability NYSE would attempt to sell off Liffe to complete the deal because "[Derivatives represent] the most profitable business" and the most growth potential due to pending derivatives clearing regulation.

The merger proposal has been sweetened by a €2 per share special dividend for those who tender their shares on closing ($1.38 per NYX share and €2 per DB1 share). NYSE and DB shareholders vote on July 7 and July 13, respectively.

In other news, DB announced that it has reached an agreement with SIX Swiss Exchange AG to purchase its remaining stake in Eurex, making DB the sole owner.

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