NYSE parent to merge with Frankfurt, Germany, exchange

February 15, 2011

The parent company of the New York Stock Exchange announced Tuesday that it plans to merge with the owners of the stock exchange in Frankfurt, Germany, a deal that would create the world’s largest trading group if it wins regulatory and shareholder approval on both sides of the Atlantic.

Under the all-stock deal, shareholders of Germany’s Deutsche Boerse would own 60 percent of the new company while NYSE Euronext shareholders would own 40 percent. That values NYSE Euronext at about $10 billion, analysts said. The new entity, which has yet to be named, would have headquarters in both Frankfurt and New York.

While both firms said in a joint statement that they expect to close the deal by the end of the year, political and regulatory obstacles could derail the timing, experts who are tracking the deal said.

Already, Sen. Charles E. Schumer (D-N.Y.) has raised concerns about whether New York’s leadership role in the world of finance would be damaged if the NYSE name is not featured prominently in the new combined entity.

“NYSE is one of the most preeminent brands in the financial industry, and there is no reason it shouldn’t come first in the new exchange’s name,” Schumer said in a statement. “If Deutsche Boerse pushes any alternative name, it would be an indication that they are not viewing this deal as a merger of equals, and that could have negative consequences with regard to future decisions on the merger’s implementations.”

Last week, when talk of the deal first surfaced, former House Speaker Newt Gingrich told a group of conservative activists gathered in Washington that the acquisition is “a fundamental blow to our capacity to lead the world.”

That kind of political pressure could unwind the deal, experts said. The boards of both companies have approved the transaction. Holders of a majority of outstanding NYSE Euronext shares still must sign off on the merger, and so must 75 percent of Deutsche Boerse shareholders.

“One of the bigger threats to this transaction is that there are nationalistic sentiments on both sides of the Atlantic that just can’t be overcome,” said Jaret Seiberg, a research analyst at MF Global. “If there is a lot of pressure coming from elected officials on the transaction, the danger is that it can cause people to rethink the merits of the deal.”

NYSE Euronext Chief Executive Duncan Niederauer would become chief executive of the new company, and Deutsche Boerse Chief Executive Reto Francioni would become its chairman. They would join the board along with 15 other directors — nine from Deutsche Boerse and six from NYSE Euronext.

In this country, the Securities and Exchange Commission must sign off on the transaction, as must the Department of Justice, which would look into the antitrust aspects of the deal, federal officials said. The Committee on Foreign Investments in the United States may also take a look. That interagency group examines the national security impact of financial transactions in which a foreign entity takes control of a U.S. business.

The biggest hurdles may be in Europe, where regulators are concerned that the new combined entity would dominate the derivatives trading market there, said Rafay Khalid, a research analyst at Standard & Poor’s.

NYSE Euronext shares closed Tuesday at $38.12, down $1.33. Deutsche Boerse shares closed at $80.86, down about $2.

dina@washpost.com

Dina ElBoghdady covers housing policy for The Washington Post.
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