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NYSE Chief Surmounts Leak That Thwarted Earlier Merger Attempt

NYSE Euronext CEO Duncan Niederauer
Duncan Niederauer, chief executive officer of NYSE Euronext. Photographer: Jin Lee/Bloomberg

High above 52nd Street in Manhattan last week, in conference rooms at the law firm of Wachtell, Lipton, Rosen & Katz LLP, word of the leak spread quickly.

A German investor newsletter service, Bernecker Boersenbriefe, had just spilled the news that the assembled lawyers and executives had protected for three months, operating under codenames “Alpha” and “Beta”: The biggest financial exchanges in New York and Frankfurt were on the verge of combining, creating a $25 billion markets behemoth.

As officials from NYSE Euronext and Deutsche Boerse AG rushed to dial in for a trans-Atlantic conference call, they could only wonder whether the long-sought merger, undone by a similar leak more than two years earlier, was again at risk of unraveling.

This time, NYSE Chief Executive Officer Duncan Niederauer, and his counterpart at Deutsche Boerse, Reto Francioni, kept the deal on course. Six days later, the executives announced the agreement to form the world’s top exchange owner, with Deutsche Boerse shareholders owning about 60 percent of the new company.

This account was assembled from interviews with people who took part in the private discussions and who spoke on condition of anonymity. Frank Herkenhoff, a spokesman for Deutsche Boerse, and Rich Adamonis, a spokesman for NYSE, declined to comment.

First Leak

Niederauer and Francioni first got serious about a merger in 2008, a year after NYSE trumped the German exchange’s bid for Euronext NV, entering the European derivatives market that Deutsche Boerse dominates. The world’s financial exchanges were being swept up in a wave of consolidation, as computer technology drove down the fees exchanges can charge for executing stock trades, and as the market for trading derivatives exploded in size.

The talks were helped along by a cordial relationship between the CEOs: Niederauer, now 51, who grew up on Long Island and plays pickup basketball, and Francioni, 55, who is Swiss and enjoys trout fishing.

Then on Dec. 6, 2008, the German magazine Der Spiegel reported that Deutsche Boerse was holding merger talks with NYSE Euronext. Unprepared for the leak, the companies failed to directly address the matter until the next day. By that time, their investors and regulators were questioning the deal, and with key terms still unresolved, the parties opted to call off talks.

Deutsche Boerse issued a statement: “If these talks indeed took place, then they ended without any conclusion.”


Leak aside, the chances for a deal had been dwindling as NYSE’s stock price plummeted that November, shifting the relative market values of the two companies to a point that it would be difficult to structure as a true merger of equals.

“There was probably too big a difference, quite honestly, in the market cap of the companies,” Niederauer said of the 2008 discussions, speaking to reporters this week. “If it weren’t balanced, it would be hard to convince the policy makers and regulators on both sides of the Atlantic to contemplate what we think is a pretty powerful combination.”

Niederauer and Francioni kept in touch, meeting at the World Economic Forum at Davos, Switzerland, in 2010.

Niederauer also considered other options, including a tie-up with London Stock Exchange Group Plc. He dropped that idea, however, after an informal conversation in mid-2010 with LSE’s CEO, Xavier Rolet, left Niederauer convinced that LSE wasn’t interested in a sale of the company. Victoria Brough, a spokeswoman for LSE, declined to comment.

Restarting Talks

By then, however, NYSE’s stock had recovered enough so that, in a merger with Deutsche Boerse, it would make up more than 36 percent of the combined company. Niederauer and Francioni restarted talks in November, and their teams at Perella Weinberg Partners LP, Deutsche Bank AG and JPMorgan Chase & Co. got to work hashing out the details. At Davos in late January, the two CEOs’ talk focused on the deal.

To assuage concerns in the U.S. and Germany that each side was selling out to foreigners, they structured a new entity in Amsterdam that would serve as the acquirer of each company. After a key negotiating session there in early February, NYSE’s 16-member board also convened in the Dutch offices for their first detailed discussion of the combination.

Another Deal

A week later, part of the Deutsche Boerse deal team was heading back to Germany after negotiations in New York at one of NYSE’s law firms, Milbank, Tweed, Hadley & McCloy LLP. Another part of the German group, whose sole outside counsel was Linklaters LLP, stayed in Manhattan for further talks the next day at Wachtell Lipton, which was also working with NYSE. Meanwhile, some NYSE officials were preparing to brief Standard & Poor’s, the credit-rating company, the following day on the merger plans.

To their surprise, they learned theirs was not the only trans-Atlantic combination in the offing: The Financial Times reported LSE was nearing a deal with TMX Group Inc., the Canadian exchange operator.

Deutsche Boerse and NYSE’s own leak followed less than a day later.

Fearing public outcry would help sink a deal for the second time, Niederauer was on the phone with New York Senator Charles Schumer, a Democrat, almost as soon as the German newsletter’s report hit. Niederauer’s team had previously identified Schumer’s approval as key for smoothing the way for how the deal would be accepted by lawmakers and regulators in Washington.

Calling Schumer

Reached at a conference in Charlottesville, Virginia, Schumer’s initial reaction was negative -- he was concerned about the merger’s impact on New York jobs and the city’s status as a financial center. His tone softened after hearing that the deal would be structured as a merger, with Niederauer as CEO.

Niederauer, in New York, then dialed in to speak with Francioni, at his office in Germany, and their advisers. The sides had agreed to disclose detailed terms in the event of a leak, though they had yet to reach an agreement on what exactly those terms would be -- just a vague notion that NYSE would receive about a 10 percent premium because of its smaller size.

With trading of both stocks halted, the executives quickly realized that they would need, in effect, to negotiate the price of the transaction in order to have something to tell the markets. In just a few minutes, they settled on a narrow range for the valuation and issued a press release.

Less than a week later, the exchanges signed the deal and announced it to the world. Still unresolved is the name of the combined firm, with Schumer and others arguing that NYSE should come first. For now, the name of the new Dutch shell company set up to facilitate the merger is a nod to the once-secret monikers: Alpha Beta Netherlands Holding NV.

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