Potential NYSE-Deutsche Borse deal incites criticism
Friday, February 11, 2011
News this week that Frankfurt-based Deutsche Borse is poised to acquire a majority stake in the New York Stock Exchange did not sit well in every corner of the financial world.
Critics complained that a symbol of American capitalism was being scooped up by foreigners. Shareholders on both sides of the Atlantic fretted about what the deal would mean for them. A headline in the New York Post screamed, "Achtung! Germans taking over NYSE."
People close to the negotiations insist that the deal, which could be formally announced next week, isn't a takeover but rather a necessary partnership that will solidify the NYSE's role in a rapidly changing world.
"We didn't sell the company to the Germans. We actually did something thoughtful," said one person with knowledge of the talks, who like others spoke on condition of anonymity because the deal has not been finalized. "It's an opportunity to create a unique global and diversified exchange in an industry where that's getting harder and harder to do."
Added another person familiar with the deal: "The status quo is not the way to preserve a place as a financial capital; what you have to do is play on a global stage, and this is playing on a global stage."
The merger would leave Deutsche Borse with a roughly 60 percent stake and NYSE Euro-next with the remainder, according to people involved. The combined exchanges would have a market capitalization of more than $20 billion, similar to that of the CME Group, parent of the Chicago Mercantile Exchange and the Chicago Board of Trade.
The merged company would be incorporated in the Netherlands and divide its headquarters between New York and Frankfurt. The current NYSE Euronext head, Duncan Niederauer, would act as chief executive of the new company; Deutsche Borse chief executive Reto Francioni would serve as chairman, the sources said.
The deal would expand the NYSE's already large footprint in the share-trading world and position the new company to garner a sizeable share of lucrative derivatives trading. One key focus of the financial regulatory overhaul passed by Congress last year was to force over-the-counter derivatives deals onto more transparent markets and clearinghouses, and the new entity also could secure a hefty chunk of that business.
Other major exchanges have moved increasingly toward consolidation, and NYSE Euronext and Deutsche Borse flirted with a merger as recently as 2009.
The move acknowledges the reality that today's trades unfold largely across the globe and at all hours, rather than face to face on trading floors. U.S.-based exchanges have been losing market share to foreign competitors, and like other exchanges, they have viewed mergers as vital to maintaining an edge.
"This is a transformational move; it's absolutely critical that this happen," former Securities and Exchange Commission chairman Arthur Levitt told Bloomberg TV.
The deal, which the exchanges hope to complete by year's end, undoubtedly would draw scrutiny from regulators in Europe and in Washington, where agencies such as the SEC and the Justice Department would have to sign off on any merger.
The reaction in Washington so far has been muted. Financial industry representatives said Thursday that they have heard few concerns about the pending deal, either from lawmakers on Capitol Hill or from the financial titans they represent.
"We live in a global marketplace," said Scott Talbott, chief lobbyist for the Financial Services Roundtable. "In the end, it shouldn't really matter as far as business is concerned, as long as the high levels of quality and safety are maintained."
Some elected officials have publicly endorsed the deal.
"I think it's very good for New York," Mayor Michael R. Bloomberg (I) said at a news conference. "You'll have the two strongest stock exchanges together, and it's going to give us access to Europe and them access to the United States in a way that some of our other competitors, like London, will not have. . . . The stronger the New York Stock Exchange is in our global world, the better off we are."