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Last Updated : Feb 12, 2011 10:38 AM IST | Source: Reuters

Factbox- Key obstacles for D.Boerse-NYSE Euronext deal

German exchange operator Deutsche Boerse is in advance talks with NYSE Euronext in a deal that would create the world's largest trading powerhouse.

German exchange operator Deutsche Boerse is in advance talks with NYSE Euronext in a deal that would create the world's largest trading powerhouse.

A deal is mooted by early next week before Deutsche Boerse presents full year earnings on February 15, and Deutsche Boerse's supervisory board, akin to a US board of directors, is likely to discuss details at a meeting slated for Tuesday.

Key obstacles to a deal remain:


Competition authorities have announced they will closely scrutinize the deal as they fear concentration in an industry that already has only a few players.

Investment bankers promoting the deal argue that regulators want security trades increasingly to be made at exchanges and not in over-the-counter (OTC) trades. "That's why they will allow the bourses to merge in order to keep pace in the worldwide race for market share", an investment banker said, adding he does not expect that Deutsche Boerse or NYSE Euronext will have to sell any assets following a merger. But the derivatives business of the two groups -- Liffe and Eurex -- has a dominant market share.

Turf battles

Deutsche Boerse and NYSE would combine under a new legal entity incorporated in the Netherlands, and have dual headquarters in New York and Frankfurt.

According to sources, the derivatives unit of Deutsche Boerse-NYSE Euronext will be headquartered in Frankfurt, while New York will get stock trading.

Paris, whose role as a big stock exchange was already diminished through the merger of NYSE and Euronext in 2006, is afraid to be left out in the cold. Economy Minister Christine Lagarde already said she would seek to preserve French interests and scrutinise the deal "with close attention."

A German regulator with power to veto a deal has also stressed that it would seek to preserve the interests of Frankfurt as a financial centre.

Balance of power

Deutsche Boerse is expected to pay a modest premium to NYSE and in return get some advantages in governance such as more board members. The German exchange's shareholders would hold 59 to 60% of the combined company.

Although investment bankers say that Deutsche Boerse is to strike a good deal -- given that it will get the cash cow derivatives trading -- some observers say that the German side may be paying a too high premium. Shareholders could scotch a deal.

Failed merger deals

* July 17, 2000 - Deutsche Boerse presents plans to create iX-international exchanges together with the LSE. They hope to create a pan-European exchange organization that would draw other exchange operators to join. It fails to muster enough support.

* Summer 2003 - Deutsche Boerse chief executive Werner Seifert sits down with Jean Francois Theodore chief executive of Euronext NV to discuss a potential merger codenamed "Project Antibes," but talks are abandoned following disagreements on valuation.

* Spring 2004 - Deutsche Boerse chief executive Werner Seifert sits down a second time with Euronext's Jean Francois Theodore to discuss a potential merger codenamed "Project Edelstein." Ultimately a disagreement over leadership structure scuppers the deal.

* February 21, 2006 - Reto Francioni, the new chief executive of Deutsche Boerse, presents a preliminary merger offer for Euronext, sparking a renewed wave of consolidation.

* May 19, 2006 - Deutsche Boerse offers Euronext chief executive Jean Francois Theodore the position of chief executive but insists that the headquarters remain in Frankfurt, which would be the location for the majority of executive management's offices.

* June 1, 2006 - Euronext announces a merger with NYSE Group Inc.

* June 19, 2006 - Deutsche Boerse presents a revised proposal for Euronext. No longer insists that Frankfurt be the headquarters for the majority of executive management's offices, but it's too late. A NYSE Euronext merger prevails.

* December 2008 - Deutsche Boerse and NYSE Euronext discuss the outlines of a possible deal, but talks are scuppered by a leak.


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First Published on Feb 12, 2011 10:29 am
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