Shareholders of European stock-exchange operator Euronext rejected a proposal Tuesday to commit in principle to a takeover by Deutsche Boerse Group, giving a boost to a rival bid from the New York Stock Exchange.
As the matchmaking dance between some of the world’s largest stock exchanges continued, Euronext’s boards reiterated they currently prefer an offer from the NYSE Group Inc. to one proposed by the German stock exchange.
Euronext CEO Jean-Francois Theodore said at the annual shareholders meeting that he and the supervisory board had not made a final decision to formally endorse either bid, but advised shareholders to vote against declaring a preference for Deutsche Boerse.
“Your board is only telling you, asking you, advising you, not to deprive yourself of your freedom of choice,” he said.
Of shares voting at the meeting Tuesday, 54 percent were against and 38 percent in favor of the proposal to commit in principle to the German exchange. Others abstained.
Deutsche Boerse, which holds its own shareholder meeting Wednesday, said it will be reviewing the implications of the Euronext vote over the coming days. The NYSE declined to comment on the results.
Euronext, which runs the Paris, Brussels, Amsterdam and Lisbon exchanges, sits at the center of the current round of stock-market consolidation, after the Nasdaq Stock Market Inc. acquired 25 percent of the London Stock Exchange PLC.
At closing prices Monday, the NYSE’s cash-and-stock offer was worth around 7.8 billion euros ($10.2 billion), while Deutsche Boerse’s bid was worth around 8.6 billion euros ($11 billion).
But the NYSE bid contains 21.32 euros ($27.38) per share in cash, versus 7.72 euros ($9.91) per share in the Deutsche Boerse deal, and the Deutsche Boerse deal requires the combined company to carry more debt. Each of the pursuing companies has touted the strategic benefits and cost savings of its plan.
Theodore said he estimated cost-saving and growth benefits from Deutsche Boerse’s offer at between 124 million euros ($159 million) and 154 million euros ($198 million) — around half the German exchange’s estimate.
Euronext Chairman Jan-Michiel Hessels said at the meeting Tuesday that after an initial review, the company’s boards believe the NYSE offer is more valuable.
“The Euronext board and the managing board consider that the transaction with the New York Stock Exchange currently offers the most attractive combination,” he said.
“Your views as shareholders will be very carefully considered by the board before making a recommendation to shareholders,” at a future meeting, he said.
Deutsche Boerse’s bid for Euronext came after an earlier move for the London Stock Exchange was blocked by its own shareholders. The NYSE’s bid for Euronext is seen as a necessary entry into Europe for the New York exchange, now that Nasdaq has an influential stake in the London exchange.
Each offer for Euronext has a strategic rationale.
A merger with Deutsche Boerse would create a single market covering much of Europe, but could run into difficulties getting approval from regulators. Theodore estimated it would take a year to merge with the German bourse, versus six months to merge with the NYSE.
A merger with the NYSE would create a market of stocks, options, futures, commodities and corporate bonds on two continents, up to 12 hours a day.
Both deals were expected to increase liquidity and ultimately decrease per-trade costs.
NYSE CEO John Thain said a merger with Euronext would create “the world’s largest and most liquid global securities marketplace” with combined listings of $27 trillion (euro21 trillion).
Several shareholders spoke out against the proposal to prefer Deutsche Boerse.
“Let the bidding war start,” said Errol Kayner of the Dutch shareholders association VEB. With two suitors in the picture, he said he didn’t see the need to rush into a merger.
“We are absolutely against this proposition, which restricts the strategic options of Euronext,” said Erik Breen, of asset management fund Robeco, who said he also spoke for the two largest Dutch pension funds, ABP and PGGM.
But some shareholders prefer the German offer. Euronext has come under heavy pressure to merge with Deutsche Boerse from a group of hedge funds controlling an estimated 20 percent of its capital — many of which also own stakes in the German exchange.
At the meeting, one investor said he was disappointed the board was so quick to endorse the NYSE bid.
Pointing to the relatively high price to earnings ratio of NYSE Group’s shares compared with that of Euronext, he said the U.S. exchange was “trying to get Euronext on the cheap.”
Theodore insisted that Euronext’s board had not decided anything yet.
Under both offers, Euronext managers would become subordinate to their acquirers. But Hessels said he had received a letter from Deutsche Boerse Chief Executive Reto Francioni saying that if that demand were the only hurdle to a merger, it could be dropped.
“It’s not a matter of principle that our man has to be No. 1,” Hessels said in response.
After the meeting, Francioni said he remains convinced of the “value and potential to strengthen earnings” that a merger between his company and Euronext would offer shareholders.