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NYSE and Deutsche Boerse merge

February 20, 2011 1 comment

The central questions are:

  1. Why are they merging? What are the benefits to each party?
  2. What’s the impact to the outside market especially their main competitors?
  3. Merge details.
  4. Potential issues.

Sources of information:

I.          New York Times (N)

II.          Associated press (A)

III.          Seeking Alpha (S)

IV.          CNBC (C)

  1. Why are they merging? What are the benefits to each party?

The reduction of the cost.

1.1.   Background information: NYSE is the largest stock market but its parent the $9.9 Billion NYSE Euronext is not the largest exchange, smaller than CME (No.1 $20 Billion) and a number of other exchanges. (A)

  1. What’s the impact to the outside market especially their main competitors?

2.1   Similar events in the same market:

2.1.1        Last week, London and Toronto stock exchanges announced tie-up LSE-TMX $2.9 Billion. (N, A)

2.1.2        In Oct, 2011, SGX, the operator of Singapore stock exchange planned to buy Australia stock exchange. (N)

2.2   Greater access to investments: add in French or Germany company shares. Takes time to materialize. (A)

2.3   Lower trading cost:  expected $400 million annual cost savings. (A)

2.4   Rivals’ response: Nasdaq, ICE and CME hold conversation about the possibility of a joint bid and no further progress from there and talks are unlikely to be advanced to a bid. (C)

2.4.1        The most threatened exchange: Nasdaq. It’s difficult for it to make a credible, full financed, overbid for NYSE. (C)

2.4.2        Similar events: A joint hostile that breaks apart an existing deal is virtually heard of. (C)

2.4.3        Practical concern: $340 million breaking up fee. (C)

  1. Merge details.

3.1   Announce date: Feb 15th. (N)

3.2   Two involving parties: NYSE Euronext and Deutsche Börse. (N)

3.3   Total amount of transaction: $9.53 billion. (N)

3.4   Name issues: Senator Charles E. Schumer of New York want it to have “New York” first in its name. (N)

3.5   Market operation: Deutsche Börse will issue 0.47 of a share for each NYSE Euronext share, a roughly 10 percent premium to the American company’s stock price on Feb. 8. (N)

3.6   Management in combined unit: chairman Mr. Francioni of Deutsche Börse, chief executive Mr. Niederauer of NYSE Euronext. Deutsche Börse hold 10/17 seats on board, 60% of the merged exchange operator’s shares.

3.7   Location: dual headquarters in New York and Frankfurt, incorporated in Netherlands.

3.8   Benefits:  expected $400 million annual cost savings.

3.9   Further steps: requires approval by owners representing a majority of NYSE Euronext shares and 75 percent of Deutsche Börse shareholders.

  1. Potential issues.

4.1   Timing and likelihood of regulatory approvals.

4.2   Synergy realization. For example, data center: (S)

4.2.1        NYSE, two data centers located in NJ and London.

4.2.2        DB, data center outsourced.

4.3   Longer-term management and cultural issues.

 

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February 19, 2011 1 comment

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