Deutsche Boerse, N.Y. Stock Exchange seal merger deal

American flags fly in front of the New York Stock Exchange. The center of American capitalism announced a deal with Germany’s Deutsche Boerse Tuesday, creating a global powerhouse.Mark Lennihan / AP
/ Source: news services

Germany’s Deutsche Boerse and NYSE Euronext said Tuesday they have struck a deal to combine two of the world’s biggest stock exchanges in a global trading powerhouse.

The new company, which has yet to be named and will be incorporated in Amsterdam, will be headed by NYSE Chief Executive Duncan Niederauer, with Deutsche Boerse Chief Executive Reto Francioni taking the post of chairman, the companies said.

Deutsche Boerse shareholders are set to own 60 percent of the combined company with NYSE Euronext shareholders taking a 40 percent stake. The combined group will have 2010 combined net revenues of $ 5.4 billion, becoming the world’s largest exchange group by revenue, the two companies said, and yield synergies of $405.2 million (300 million euros).

Each NYSE Euronext share will be converted into 0.47 of a share in the new holding company. Deutsche Boerse shares will be converted into one share each of the new company. Under those terms the deal would value NYSE Euronext at about $10 billion.

Last week, the two companies unveiled the first details of a merger plan that would create the world's largest stock exchange, just hours after the London Stock Exchange said it would buy Canada's TMX, sparking a merger frenzy in the sector.

Regulators are paying close attention to the latest round of deals. Exchange users have also raised red flags over the proposed tie-ups.

"Euronext and Deutsche Boerse are still screwing us on fees for clearing, the closing auctions and small and mid-cap trading — the areas where they still have virtual monopolies," said the head of markets at a large European bank, who declined to be named. "A merger is concerning because together they will be more powerful and better placed to protect these monopolies."

Political and regulatory hurdles may threaten the Deutsche Boerse-NYSE Euronext tie-up.

"The biggest question mark in general is obviously the European political and regulatory landscape coming out of this," one source said.

The boards of both exchange owners have signed off on the deal, but it must still be approved by shareholders and regulators.

The Frankfurt- and New York-based companies were center stage in the merger frenzy that erupted last week and heated up on Monday as Brazil's BM&FBovespa said it was looking at its own prospects and as speculation that CME Group could jump into the fray intensified.

Fox Business Network reported that CME Group, currently the world's top derivatives exchange group, might make a hostile bid for NYSE Euronext, citing bankers.

A spokesman for the Chicago-based exchange declined to comment. CME officials have been guiding investors away from expectations that it would do a merger deal.

BM&FBovespa, the world's fourth-largest financial exchange operator, is closely looking out for tie-up opportunities, Chief Executive Edemir Pinto told Reuters. Pinto said China and India were markets where it could expand.

Owners of traditional stock exchanges have been combining for several years to save costs as competition mounts from new computerized stock exchanges with names like BATS and Chi-X.

The NYSE Group, operator of the New York Stock Exchange, bought Euronext for $10.2 billion in 2007, beating out a rival bid from Deutsche Boerse. The combined company handles stock and derivative markets in Amsterdam, Brussels, Lisbon and Paris as well as the NYSE Liffe derivatives market.

Deutsche Boerse, whose predecessor was founded in 1585, operates the stock market in Europe's largest economy. It also runs Europe's largest derivative exchange, the Eurex.

The largest exchange owner in the U.S. is currently the $20 billion CME Group. CME runs the Chicago Mercantile Exchange, where wheat, corn and pork belly futures are traded, as well as a number of other exchanges.