German exchange operator Deutsche Boerse has detailed its planned takeover deal with NYSE Euronext to create the world's largest trading powerhouse, but key regulatory obstacles remain:
The U.S. Securities and Exchange Commission would have to sign off on the takeover, which could also draw antitrust scrutiny from the Justice Department. The U.S. government's Committee on Foreign Investment in the United States could also raise national security concerns.
European antitrust authorities will eye derivatives trading in particular, given that the combination of Deutsche Boerse's Eurex and NYSE Euronext's London-based Liffe platforms would dominate trading in interest rate, fixed-income, and equity- and index-based products in Europe.
Adding to its European derivatives stronghold, NYSE Euronext plans to launch a U.S. futures exchange and clearing house next month, putting pressure squarely on Chicago-based CME Group Inc, the world's top derivatives exchange operator.
Investment bankers promoting the deal argue the new group would not constitute a monopoly, citing competition from the $600 trillion over-the-counter derivatives market.
The Ministry of Economics in the German state of Hesse, home to Deutsche Boerse, can veto a deal.
The Frankfurt Stock Exchange is an independent entity under administrative law and therefore regulated by the ministry in Wiesbaden, the capital of Hesse, which also bestows the license to operate the Frankfurt Stock Exchange.
If the ministry finds that a new operating company impedes the smooth operation of financial markets, it could refuse to award a license.
The Hessian regulator also has the power to cancel the voting rights of shareholders if their influence endangers the smooth running of the exchange.
French markets regulator AMF has said it will seek to ensure the smooth functioning and development of Paris as a financial center.
The role of the French capital as a stock exchange hub was diminished through the merger of NYSE and Euronext in 2006. Paris is afraid to be left out in the cold. Economy Minister Christine Lagarde has said she would seek to preserve French interests and scrutinize the deal "with close attention."
Germany's financial markets supervisor Bafin would also need to approve any takeover offer for Deutsche Boerse's shares under Germany's takeover law.
DEUTSCHE BOERSE'S FAILED MERGERS
• July 17, 2000 - Deutsche Boerse presents plans to create iX-international exchanges together with the LSE. They hope to create a pan-European exchange organization that would draw other exchange operators to join. It fails to muster enough support.
• Summer 2003 - Deutsche Boerse chief executive Werner Seifert sits down with Jean Francois Theodore chief executive of Euronext NV to discuss a potential merger but talks are abandoned following disagreements on valuation.
• Spring 2004 - Seifert sits down for a second time with Theodore to discuss a merger but disagreement over leadership structure scuppers the deal.
• February 21, 2006 - Reto Francioni, the new chief executive of Deutsche Boerse, presents a preliminary merger offer for Euronext, sparking a renewed wave of consolidation.
• May 19, 2006 - Deutsche Boerse offers Euronext's Theodore the position of chief executive but insists that the headquarters remain in Frankfurt, which would be the location for the majority of executive management's offices.
• June 1, 2006 - Euronext announces a merger with NYSE Group
• June 19, 2006 - Deutsche Boerse presents revised proposal for Euronext. No longer insists Frankfurt be the headquarters for the majority of executive management's offices, but it's too late. A NYSE Euronext merger prevails.
• December 2008 - Deutsche Boerse and NYSE Euronext discuss the outlines of a possible deal, but talks scuppered by a leak.
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