Richard Drew
With the ink barely dry on a deal certain to face political headwinds, the owners of the New York and Frankfurt stock exchanges are already planning to add Asia to their powerful American-European alliance.
NYSE Euronext Inc. and Deutsche Boerse AG are joining forces to form the world's biggest owner of stock and derivatives markets under a deal announced Tuesday, setting the pace in a global rush by exchanges to expand to more corners of the globe by purchasing rivals.
"I don't think there has been a transaction like this in the history of our industry," NYSE Euronext chief executive officer Duncan Niederauer told reporters in New York. "There will be no company like it in the global exchange industry," he said, adding that he envisions the firm being "the first choice" of traders, companies and other exchanges in Asia and other emerging markets.
The companies released few details on material changes that would result from a merger, estimating that about $400-million (U.S.) would be realized through efficiency gains. Mr. Niederauer, who would retain his current title with the new company, and Deutsche Boerse CEO Reto Francioni, who would become chairman, made clear the reason for the merger was to become big enough to be a force in Asia and other emerging markets as demand for trading rises with their fast-growing economies.
Deutsche Boerse's shareholders will receive 60 per cent of the combined entity in an all-stock purchase worth $9.53-billion.
"We see significant growth opportunities in Asia," said Mr. Niederauer, adding they wanted to the new company to be the "venue of choice for new clients" and the "partner of choice" for exchanges in Asia, Latin American and Eastern Europe.
Exchanges have completed merger agreements worth $100-billion since 2000, according to Bloomberg News, reflecting an increasingly interconnected global economy and a growing mass of sophisticated investors who want access to more assets than only those available in their home countries.
The coupling instinct wavered during the financial crisis, but is picking up again as the global economic recovery gains steam and the intentions of international regulators become clearer.
Singapore Exchange Ltd. agreed to concessions on Tuesday to smooth regulatory approval of its October bid for Australia's ASX Ltd., pledging to keep an equal number of Australians and Singaporeans on the new company's board of directors. Last week, London Stock Exchange PLC announced a purchase agreement with TMX Group Inc., the owner of the Toronto Stock Exchange, a combination that if approved would create the world's largest listing of resource companies.
Tuesday's announcement sparked speculation of more consolidation. Shares of CBOE Holdings Inc. of Chicago and Nasdaq OMX Group Inc. of New York rallied on speculation they would the next to be bought. CME Group Inc., another Chicago-based firm whose market leadership in futures trading would be challenged by the plans of Deutsche Boerse and NYSE Euronext, was forced to fend off questions that it is planning an acquisition.
"Like other industry participants, we will continue to monitor ongoing developments in the global exchange sector and the implications of those developments on our long-term growth strategy," the company said in a statement.
Messrs. Francioni and Niederauer said they had been in touch with regulators in Europe and the U.S. and that they didn't anticipate significant resistance. Hal Scott, a professor at Harvard Law School who specializes in financial regulation, said there was little chance the Deutsche Boerse-NYSE Euronext proposal would be blocked.
But the proposal could face political headwinds.
The new company hasn't been named, highlighting the symbolic importance of two entities that are intertwined with the identities of their respective home economies. The architects of the agreement, who spoke to reporters simultaneously in New York and Frankfurt, faced questions from the American press reflecting worry that the New York Stock Exchange would be left to languish, while reporters in Germany asked whether power would shift to the United States.
"It's great for Germany, it's another black eye for the U.S.," Donald Trump, founder of Trump Entertainment Resorts Inc. and host of the NBC television series The Apprentice, said on CNBC when asked about the agreement. Charles Schumer, a Democratic Senator from New York, is threatening to oppose the purchase if the NYSE name is lost - or even comes second to Deutsche Boerse. "I am withholding judgment to see what they do with the name," Mr. Schumer told CNBC.
Both Mr. Francioni and Mr. Niederauer insisted the combination was a merger of equals. The company, which will be registered in the Netherlands, will keep headquarters in Frankfurt and New York. Deutsche Boerse will get 10 of 17 seats on the board of directors, but Americans would hold more than half of the combined shares, Mr. Niederauer said.
To counter sentimentality, the two executives emphasized the new company's reach. "New Co.," as Mr. Niederauer called it, would be a dominate player in derivatives, perhaps the faster growing segment of the market.
But the focus of their plans is expanding to Asia, something both men said they were poorly placed to do alone. "With this sheer mass, you can tackle other markets," said Mr. Francioni.