Deutsche Boerse AG is in advanced talks to buy NYSE Euronext in an all-stock transaction that would create the world’s biggest exchange operator, accelerating a day of takeovers that began with London Stock Exchange Group Plc’s acquisition of Canada’s TMX Group Inc.
NYSE and Deutsche Boerse said they will produce 300 million euros ($410 million) in cost savings, according to a statement. Duncan Niederauer, New York-based NYSE Euronext’s chief executive officer, will hold the same job at the combined company. Frankfurt-based Reto Francioni, CEO of Deutsche Boerse, will be chairman. Deutsche Boerse will own about 59 percent to 60 percent of the joined corporation.
The combination, following a decade-long wave of mergers among exchange companies, would unite equity and derivatives platforms from the U.S. and Germany to France, the Netherlands and Portugal. Since 2000, there has been at least $95.8 billion in completed acquisitions at exchanges worldwide, including NYSE Group’s purchase of Euronext NV and Nasdaq Stock Market Inc.’s takeover of OMX AB, according to data compiled by Bloomberg.
“Companies had their hands full with integrating a round of mergers that were done in 2006 and 2007 and also the effects of the financial crisis on their business and regulation,” said Ed Ditmire, an analyst with Macquarie Group Ltd. in New York who has an “outperform” rating on NYSE Euronext. “Takeovers are regaining their place as a central feature in the development of this industry.”
Deutsche Boerse discussed acquiring NYSE Euronext at least twice before. Germany’s biggest exchange operator commissioned an internal study in 2008 on combining, four people with direct knowledge of the situation said in December of that year. They held a second round of talks in 2009, said people familiar with the matter who declined to be identified because the negotiations were private.
The Frankfurt-based exchange also bid for London Stock Exchange Group, one of four companies that tried to purchase it in the past decade. Other suitors included Nasdaq OMX Group Inc., Euronext and Macquarie Group Ltd.
NYSE Euronext shares surged 15 percent to $38.46 at 1:48 p.m. in New York and jumped 20 percent earlier, the most intraday since December 2008. Deutsche Boerse climbed 1.7 percent to 58.44 euros, the highest price since January 2010, before it was suspended. Their total market value of $25.7 billion exceeds Hong Kong Exchanges & Clearing Ltd.’s, currently the world’s largest exchange operator by market capitalization.
The Bloomberg World Exchange Index of 23 companies rallied 2.5 percent. Nasdaq OMX advanced 7.2 percent to $27.71. CBOE Holdings Inc. climbed 5.5 percent to $25.83.
NYSE Euronext was formed when the operator of the New York Stock Exchange bought Europe’s second-largest exchange in 2007. NYSE owns exchanges in Amsterdam, Lisbon, Paris and Brussels, as well as the London-based Liffe, Europe’s second-largest derivatives market. The company also runs three U.S. stock exchanges: NYSE Arca, NYSE Amex and the New York Stock Exchange, two options platforms and the NYSE Liffe US futures exchange, which will trade interest-rate products.
Deutsche Boerse owns the Frankfurt stock exchange and Clearstream, Europe’s second-biggest securities-settlement company. The company also has Eurex Clearing AG and a holding in Eurex, the region’s largest futures market. Eurex bought International Securities Exchange, an options market that competes with CBOE Holdings in the U.S., in 2007.
The talks between NYSE and Deutsche Boerse and the agreement between LSE and TMX follow Singapore Exchange Ltd.’s October offer to buy ASX Ltd., operator of Australia’s main bourse, for A$8.4 billion ($8.5 billion).
London Stock Exchange Group said today that it agreed to buy Toronto-based TMX Group as the companies cut costs to counter market share losses. The merger is an attempt to maintain profitability and expand in derivatives as the companies’ loss of business in trading worsens, said Diego Perfumo, an analyst at Equity Research Desk in Greenwich, Connecticut, who advises hedge funds.
“Competition in equity trading is intensifying, so exchanges need to be able to trade more cheaply and at faster speed against alternative trading venues,” Perfumo said. “The LSE and TMX need to become the low-cost provider with the fastest execution platform to compete effectively and hence try to reverse or slow this market-share trend.”
Lost Market Share
In the U.S., where the New York Stock Exchange and Nasdaq Stock Market controlled 80 percent of volume a decade ago, no firm accounts for more than 27 percent, Barclays Plc data show.
Deutsche Boerse, with average annual profit growth of 22 percent since 1997, is swapping stock priced at 7.2 times earnings before interest, taxes, depreciation and amortization for NYSE Euronext shares that trade at an Ebitda multiple of 8.8, according to data compiled by Bloomberg. NYSE’s income has risen 23 percent annually since 2000.
More than 26 percent of revenue that Deutsche Boerse takes in is recorded as net income, according to the quarterly median since 2003 compiled by Bloomberg. At NYSE, the median net margin has been 8.3 percent, the data show.
NYSE’s shares declined 60 percent through yesterday since it announced plans to buy Euronext NV in June 2007, while the MSCI World Index slumped 16 percent and financial shares in the measure declined 42 percent. Deutsche Boerse has fallen 59 percent since its peak in December 2007.
Deutsche Boerse and NYSE Euronext had a combined market capitalization of $24 billion yesterday, with the New York-based company representing 36 percent of the total. The companies said NYSE Euronext will control 40 percent to 41 percent of the joined corporation, implying that Deutsche Boerse is paying a premium of more than 11 percent, Bloomberg data show.
“They both have a lot of scale already but you combine the two, you dramatically increase your scale, you put everything on one trading system,” said Michael Vinciquerra, an Atlanta-based analyst at BMO Capital Markets, who rates NYSE Euronext “outperform” and Deutsche Boerse “market perform.” “It goes both ways in terms of the benefits.”
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