The chief executive officers of Deutsche Boerse AG (DB1) and NYSE Euronext will meet in New York tomorrow to discuss rising opposition to their planned merger, according to two people with direct knowledge of the matter.
Reto Francioni and executives of Deutsche Boerse are flying to meet NYSE’s Duncan Niederauer after the companies said today that no official decision has been received from European antitrust regulators on the deal. Shares of the exchange operators rose more than 5 percent after the Financial Times said the European Commission would block it.
“Their realistic options are to continue to do what they’re doing, lobby for the deal and give every ounce of effort, and I think that’s what they’re doing,” Richard Repetto, an analyst at Sandler O’Neill & Partners LP in New York, said in a telephone interview. “They never positioned this deal as a layup, or an automatic shoo-in.”
Niederauer and Francioni have been working for 11 months to convince competition authorities in Europe that their merger won’t stifle competition in derivatives trading. Scrutiny of the proposed acquisition has been greatest in Europe where it would unite the region’s two biggest derivatives exchanges, NYSE’s Liffe and Deutsche Boerse’s Eurex.
The executives will discuss steps that can be taken to persuade regulators to clear the proposal, which would create the world’s biggest exchange company, two people said, requesting anonymity because the plans are private. Topics will include opposition in the EC and among regulators in the German state of Hesse, as well as the integration they have been pursuing since announcing the deal in February, the people said.
“They could appeal to politicians to secure some pressure on the regulators,” Jamie Selway, head of liquidity management at New York-based Investment Technology Group Inc., said in a phone interview. “They could say that if European politicians are intent on setting back the financial markets in Europe substantially, preventing this deal is a good way to do that.”
EC negotiators told the companies at a Dec. 21 meeting in Brussels the concessions they offered to allay competition concerns didn’t go far enough and that they were likely to recommend against the merger, two people familiar with the talks told Bloomberg at the time. People familiar with the situation said Dec. 30 that a draft recommendation reflecting that opinion would probably be released this month.
NYSE shares climbed 5.6 percent to $28.05 as of 2:30 p.m. in New York after the Financial Times said Joaquin Almunia, the EC’s antitrust chief, told the companies he will recommend against the deal. Almunia’s team drafted an official recommendation opposing the plan, the FT said, citing two people involved in the process. Deutsche Boerse advanced 4.9 percent to 42.02 euros.
“Deutsche Boerse and NYSE Euronext have not received yet an official decision by the European Commission regarding the requested merger,” Deutsche Boerse spokesman Frank Herkenhoff said in an e-mailed statement. The New York Stock Exchange owner issued a similar statement, citing a media report.
“The commission has announced that it will make its final ruling on whether to clear the proposed merger by Feb. 9, 2012,” Herkenhoff said. “As a matter of policy, we cannot comment on speculation.”
Deutsche Boerse agreed to acquire NYSE Euronext (NYX) on Feb. 15 for stock worth $9.53 billion. The value of the acquisition has fallen to about $6.6 billion as stocks around the world tumbled. Germany’s DAX Index is down 16 percent since the merger discussions were first reported Feb. 9.
Room to Maneuver
Even if Almunia’s team recommends against the transaction, the companies have room to maneuver. Before deciding whether to approve or block a deal, the European Commission must consult competition agencies from the European Union’s member nations. Commissioners from each EU country must vote on a decision and companies can appeal a ban at the EU courts.
The takeover would put more than 90 percent of the European exchange-traded derivatives market and about 30 percent of the region’s stock trading in the hands of one company. Deutsche Boerse’s Eurex is the region’s biggest derivatives exchange, while Liffe is the second-largest. Eurex is owner of New York- based International Securities Exchange, which has a 31.5 percent stake in Direct Edge Holdings LLC. Brokers own the rest.
“The thesis by regulators and politicians is that exchanges are part of the solution for OTC derivatives trading,” Selway said. “They may look to remind politicians of that and let them know a unified derivatives market for Europe will be a counterweight to CME in the U.S. They could argue that not having that would weaken Europe.”
In Europe, the companies have offered capping fees on derivatives trading and clearing for three years, selling NYSE’s Liffe single-stock derivatives business, and the licensing of the Eurex trading system to a third party, said the people, who declined to be named because the talks are private. Regulators haven’t drafted a decision yet, they said.
The takeover was cleared by the U.S. Justice Department on Dec. 22. U.S. regulators, who in May blocked Nasdaq OMX Group Inc. from pursuing a hostile bid for the New York Stock Exchange owner, agreed to allow the purchase by Frankfurt-based Deutsche Boerse as long as the company sells its 31.5 percent stake in another U.S. equity market, Direct Edge Holdings LLC.