Deutsche Boerse AG shareholders approved its $9.2 billion takeover of NYSE Euronext, surmounting the biggest hurdle yet to gain control of the 219-year-old exchange company and create the world’s biggest bourse operator.
Owners holding more than 80 percent of Deutsche Boerse shares backed the agreement, surpassing the 75 percent needed for approval, the Frankfurt-based exchange said in a statement today. The all-stock transaction will give Deutsche Boerse 60 percent of the combined entity, while NYSE Euronext Chief Executive Officer Duncan Niederauer will run the organization.
The agreement clears the second of three main obstacles for the takeover after NYSE shareholders voted in favor of the transaction on July 7. European regulators, who set an initial deadline of Aug. 4 to rule on the deal, are reviewing the transaction because it would unite venues that handle more than 90 percent of the region’s exchange-traded derivatives.
“Using an American football analogy, it’s another first down,” said Richard Repetto, an exchange analyst at Sandler O’Neill & Partners LP in New York who rates NYSE “buy.” “They still need to clear the regulators, particularly the European Competition Commission before they reach the end zone.”
Singapore Exchange, ASX
There have been $37 billion of exchange merger announcements since Singapore Exchange Ltd. said Oct. 25 that it would pay A$8.35 billion ($8.99 billion) for ASX Ltd., according to Bloomberg data that include planned, unsolicited and terminated bids. The Australian government rejected the Singapore deal in April. London Stock Exchange Group Plc dropped its 2.13 billion-pound ($3.4 billion) bid for TMX Group Inc. last month, citing a lack of shareholder support.
NYSE Euronext shares fell 0.1 percent to $33.81 at 4 p.m. in New York. The stock has climbed 1.2 percent since Feb. 8, the day before the company and Deutsche Boerse said they were in merger negotiations. The German company’s shares fell 0.5 percent to 53 euros in Frankfurt.
“We expected support from both shareholder groups, so today’s announcement comes with little surprise,” Alex Kramm, a New York-based exchange analyst at UBS AG, wrote in e-mailed comments. “We still see significant upside in the shares, but it might take some time until investors give full credit to the earnings power of the combined entity and outlined synergies.”
NYSE Euronext and Deutsche Boerse held talks in late 2008 about a merger that ended without a deal. They restarted negotiations in August 2010, according to regulatory filings. The companies aimed for a premium of 10 percent or more than the NYSE Euronext stock price of $33.41 on Feb. 8, the filings show.
The combined company would have operations in 11 countries and generate 5.6 billion euros ($8 billion) in sales and 869 million euros in profit annually, according to a regulatory filing. Earnings before interest and taxes for the combined exchange would have been 1.1 billion euros for the year that ended Dec. 31.
NYSE Euronext-Deutsche Boerse would own three of the nine U.S. options exchanges, with 41 percent of the industry’s volume, according to data compiled by Chicago-based OCC. In addition to the three U.S. stock exchanges NYSE Euronext already owns, the company would have a 32 percent stake in Jersey City, New Jersey-based Direct Edge Holdings LLC, which runs two markets, putting 5 of the nation’s 13 equity exchanges under common ownership.
The deal may encounter resistance from European regulators, who could take issue with giving one firm control of the Eurex and NYSE Liffe derivatives markets, the two largest in Europe. The joined entity would also control about 29 percent of the region’s stock trading, according to data compiled by Lenexa, Kansas-based Bats Global Markets.
NYSE Euronext and Deutsche Boerse traded or cleared 4.8 billion futures and options contracts last year, according to data including equity options and futures contracts from the Washington-based Futures Industry Association. That was more than Chicago-based CME Group Inc., which is in second place at 3.1 billion contracts.
The European Commission sent a survey with 165 questions to Deutsche Boerse rivals and customers, asking if the deal would reduce competition and what effect it would have on access to market data.
“I don’t think EU approval will be too much of a problem,” said Frederic Ponzo, managing partner at London-based GreySpark Partners, which advises financial institutions. “The EU can block it on the basis of the company having a dominant position or they have the opportunity to create a European champion in derivatives. The latter is to the benefit of everyone in Europe.”