Four years after losing to the New York Stock Exchange in the takeover of Euronext NV, Deutsche Boerse AG’s Reto Francioni is buying both companies and putting his rival’s chief executive officer, Duncan Niederauer, in charge.
Francioni, the 55-year-old CEO of Frankfurt-based Deutsche Boerse, will become chairman should the takeover of NYSE Euronext succeed. The companies said Feb. 9 that they are in advanced talks to create the world’s largest exchange. Deutsche Boerse would pay about $10 billion in stock and control 60 percent of the combined corporation.
While Francioni is known for cutting costs by shifting jobs to Prague from Frankfurt and moving to cheaper headquarters, Niederauer, 51, built his reputation running Goldman Sachs Group Inc.’s specialist operation on the floor of the NYSE, describing himself as “obsessed” with the structure of equities trading. He has boosted technology spending as competition with about 50 U.S. trading venues helped drive NYSE Euronext’s stock price down 56 percent since he became CEO at the end of 2007.
“Reto has done a good job, especially on costs,” said Dirk Hoffmann-Becking, London-based exchange analyst at Sanford C. Bernstein Ltd. “But we are in a different world now. He’s picked a great opportunity at this juncture to move Deutsche Boerse into another league, and credit to him, he’s prepared to step aside to make the deal go through.”
Niederauer, who spent two decades at Goldman Sachs before joining NYSE in 2007, has emphasized technology at the 219-year-old company to combat market-share losses. He built data centers in Mahwah, New Jersey, and outside London where customers can house trading systems and bolstered the company’s computer-services unit with the goal of generating $1 billion in sales a year. He pushed NYSE Euronext to make more money from data and clearing and expanded its U.S. derivatives business.
“I’m a big fan,” said Dick Grasso, the former chairman and chief executive officer of the New York Stock Exchange. Grasso was forced to resign in 2003 after receiving $140 million in pay. “He’s driven the exchange through some of the most competitively challenging waters that the institution has ever seen,” Grasso, 64, said yesterday. “He’s done an excellent job.”
Futures, Options Trading
Francioni and Niederauer would control an exchange with about $15 trillion of publicly traded companies, more than any other market owner, and handle the most futures and options trading in the world, according to data compiled by Bloomberg. They’re joining after NYSE Euronext’s proportion of trading in the U.S. stocks it lists plunged to about 23 percent from 80 percent amid competition with Nasdaq OMX Group Inc., Bats Trading Inc. and Direct Edge Holdings LLC.
NYSE slipped 0.7 percent to $37.52 at 11:29 a.m. in Paris trading today, while Deutsche Boerse advanced 0.4 percent to 61.32 euros in Frankfurt, a sixth day of gains.
Francioni, born in Brugg near Zurich and a speaker of French, Italian, German and English, earned a doctorate in law from the University of Zurich in 1987 and became a lieutenant colonel in the Swiss army. He co-wrote “Equity Markets in Action.”
Returned as CEO
He was a member of Deutsche Boerse’s executive board from 1993 to 2000, leaving to become co-chief executive officer of ConSors Discount Broker AG, at the time Europe’s second-largest online broker. Two years later, he moved to SWX Group as chairman of the Swiss Exchange. He returned to Frankfurt as CEO in 2005 after shareholders ousted Werner Seifert over his failed attempt to buy the London Stock Exchange. Deutsche Boerse’s stock has risen 57 percent since his appointment was approved.
Francioni, whose hobbies are trout fishing and reading philosophy, cut expenses by 14 percent between 2007 and 2009, according to Bloomberg data. Deutsche Boerse reported third-quarter costs of 306.8 million euros ($416 million), the lowest quarterly level since 2006, and said in March that it would move jobs to Prague from Frankfurt and Luxembourg.
“We believe that a change in management, introducing a less defensive and more customer- and innovation-focused mindset, would be positive for Deutsche Boerse,” Christian Muschick, an exchanges analyst at Silvia Quandt & Cie., wrote in a note to investors. “Niederauer should be the right person.”
The merger talks are the second time that Deutsche Boerse and NYSE Euronext have tried to combine. Francioni and Niederauer failed to reach a deal in December 2008. Success this time would cap a $95.8-billion, decade-long wave of mergers among exchanges and would unite equity and derivatives platforms from the U.S. and Germany to France, the Netherlands and Portugal.
After NYSE acquired Euronext in 2007, Francioni bought the International Securities Exchange, a New York-based options market, for $2.79 billion to get a U.S. foothold. He also purchased stakes in Bombay Stock Exchange Ltd. and European Energy Exchange AG.
“He has good connections, and he’s diplomatic,” said Joerg Franke, who ran the derivatives business at Deutsche Boerse when Francioni headed the stocks unit. Franke is chairman of the supervisory board of Berliner Effektengesellschaft AG, a brokerage in Berlin. “So even after the failure of the Euronext deal attempt in 2006, he’s managed to come back. The role of chairman is the right one for him though. It worked well at the Swiss exchange when he had a CEO to run the business.”
Niederauer, a native of Long Island, New York, whose father emigrated from Germany, earned a master’s degree in business administration from Emory University and an undergraduate degree from Colgate University, according to NYSE’s website. His experience as the father of an autistic son has prepared him to lead, according to Philip Orlando, the New York-based chief equity market strategist at Federated Investors Inc. Niederauer’s wife Alison is on the board of Autism Speaks.
“That bleeds over into his professional leadership capabilities because as big as the challenges are day to day that we face in the investment community and the professional world, those challenges pale in comparison to raising a special needs child,” said Orlando, who also has a child with autism. “It’s a humbling experience.”
‘Obsessed’ With Structure
Niederauer worked at Goldman Sachs for 22 years. In 2005, he helped the New York-based investment bank arrange the sale of Archipelago to the NYSE, a deal that transformed the Big Board into a for-profit, publicly traded company. In e-mails to colleagues at the time, the pick-up basketball enthusiast described himself as “obsessed” with the structure of U.S. equity trading and critical of the NYSE’s reluctance to embrace automation, according to documents filed during a lawsuit against the exchange.
He was hired by NYSE CEO John Thain as president and co-chief operating officer in April 2007 and got the top job later that year after his predecessor, who bought Euronext, left to lead Merrill Lynch & Co.
Niederauer has focused on increasing revenue at NYSE Euronext’s technology unit to $1 billion by 2015 with margins of 25 percent to 30 percent. He also lowered costs, cutting 2 percent of jobs in the fourth quarter from the previous period. The reductions led NYSE to report a smaller drop in fourth-quarter earnings than analysts’ estimated.
$7.27 Million Compensation
NYSE paid Niederauer $7.27 million in 2009, less than the previous year’s $9.18 million, according to data compiled by Bloomberg that includes salary, bonus and stock awards. Francioni’s total compensation fell to 2.47 million euros ($3.35 million) in 2009 from 3.56 million euros in 2008, based on the company’s annual report.
Deutsche Boerse and NYSE Euronext announced their merger discussions on Feb. 9 as London Stock Exchange Group Plc Chief Executive Officer Xavier Rolet and Thomas Kloet, CEO of TMX Group Inc., presented details of LSE’s takeover of the Toronto exchange. It was the biggest day ever for deal announcements in the industry.
“The sector is taking the next leg up in the consolidation game,” said Hoffmann-Becking, the Bernstein analyst. “The question is how good are you at playing the game? With this deal, Deutsche Boerse and Reto have put themselves in a very good position.”