NYSE Group Inc. agreed Thursday to acquire Euronext NV for nearly $10 billion in cash and stock, creating the first trans-Atlantic securities market in a deal that would pressure rival exchanges to consolidate.
The 214-year-old New York Stock Exchange trumped a competing bid by Deutsche Boerse AG to acquire Paris-based Euronext, which operates bourses in Paris, Amsterdam, Brussels and Lisbon. If approved by shareholders and regulators, the New York Stock Exchange and Euronext will handle about $2.1 trillion in stock trades each month and have a market value of $20 billion.
The acquisition of Europe’s second-largest stock exchange ushers in a new era for financial markets, one in which investors can trade stocks, options, futures, commodities and corporate bonds on two continents up to 12 hours a day.
NYSE’s move also ups the ante for rival exchanges — chiefly the Nasdaq Stock Market Inc. and Deutsche Boerse — to assemble their own deals to avoid being left behind in global consolidation.
“This is an important development in the history of the NYSE, Euronext and the global capital markets,” NYSE Chief Executive John Thain said in a statement. “A partnership with Euronext fulfills our shared vision of building a truly global marketplace with great breadth of product and geographic reach that will benefit all investors, issuers, and our shareholders and stakeholders.”
The newly formed NYSE Euronext’s market value would make it the globe’s most valuable securities market. The largest is currently Chicago Mercantile Exchange Holdings Inc., which is worth some $15.6 billion.
Under the proposal, each NYSE share would be converted into one share of common stock of the new combined company NYSE Euronext. Holders of Euronext ordinary shares would be offered the right to exchange each of their shares for 0.98 share of NYSE Euronext stock and 21.32 euros ($27.42) in cash.
The deal, worth $9.96 billion, gives Euronext shareholders a “mix and match” option to select how much cash or stake in the newly combined company they prefer. Euronext will also pay a previously announced dividend of 3 euros per share.
The exchange will have its group headquarters at the NYSE’s current base in New York and European headquarters at Euronext’s base.
Euronext Chairman Jan-Michiel Hessels will maintain that position, while Thain would continue as CEO. The board of a combined company would include 11 directors from NYSE and nine from Euronext.
Each of the companies’ markets would come under the jurisdiction of local regulators — a move that seemed aimed at addressing concerns that European exchanges would have to comply with stricter U.S. market rules. Passage of the deal is expected to be a cooperative effort between regulators in the U.S. and Europe.
“We are working with our counterparts in Paris and Amsterdam to establish a cooperative approach to the type of combination being proposed,” said Securities and Exchange Commission Chairman Christopher Cox. “We have every expectation that a transaction can take place that will benefit investors in all of the affected countries.”
Common shares of NYSE Euronext would be listed on the New York Stock Exchange and Euronext.
Both exchanges believe the combination will create cost savings of $375 million, with some $250 million of that from integrating their technology platforms. NYSE Euronext is expected to be launched within six months, following regulatory and shareholder approval.
“The Supervisory and Management Boards of Euronext have been through an extensive process of identifying the best consolidation opportunity for our shareholders, issuers, and users, and we strongly believe NYSE is the best partner,” Hessels said in a statement.
Hessels and Thain were to give further details of a deal they’re calling a “merger of equals” Friday morning at a news conference in Paris.
What’s unclear is whether Deutsche Boerse might return with a sweetened bid, even though Euronext management urged shareholders to support the NYSE deal. At least one large Euronext shareholder has said the company could have garnered a higher premium given the industry’s consolidation.
The agreement comes amid a flurry of deal proposals that kicked off in March, when the Nasdaq made a $4.5 billion bid for the London Stock Exchange. After the offer was rebuffed, the Nasdaq has since acquired more than 25 percent of the LSE, prompting Euronext to call off its long-running interest in the British exchange.
In addition, Deutsche Boerse last month unveiled a competing offer for Euronext that was valued at about $11 billion. The German exchange has already failed on several occasions in recent years to acquire the London Stock Exchange, and has told shareholders it will scout deals in the U.S. and Asia if its bid for Euronext fell short.
“The NYSE and Euronext deal is putting heat on all the other exchanges to consolidate, and the big prize out there is the London Stock Exchange,” said Axel Merk, whose Palo Alto, Calif.-based Merk Investments manages the Hot Currency Fund.
“This is an attempt by all these stock markets to get more of a global reach, and I believe it remains to be seen where the real synergies are for these exchanges to become global,” he said. “I don’t see Americans investing in Europe more aggressively just because the NYSE buys Euronext. But, they were smart to do it right now and swiftly before everyone is scrambling to do a deal.”