Bloomberg News

Deutsche Boerse-NYSE May Look at Overlapping Areas for EU

November 04, 2011

(Updates with earnings beat estimates in third and seventh paragraphs.)

Nov. 3 (Bloomberg) -- NYSE Euronext and Deutsche Boerse AG may look to overlapping business areas to find concessions they could offer to allay European regulators’ concerns over their plan to form the world’s largest exchange.

“We refuse to give the specifics of what we would do or not do, but there is some level of overlap between our two businesses,” NYSE Euronext Chief Financial Officer Michael S. Geltzeiler said in an interview today after the New York-based company announced quarterly earnings. “We do compete directly in some areas -- it’s a small minority part of the business. So, one could decide to divest where you directly compete.”

He cited CME Group Inc.’s sale of its metal-trading products to NYSE Euronext in 2008 as an example. NYSE Euronext, which today posted third-quarter earnings that beat analyst projections on higher trading volume, took over metal- derivatives contracts, ridding Chicago-based CME Group of a business that would have overlapped with Nymex Holdings Inc. as the two exchanges negotiated a merger.

Nov. 17

NYSE Euronext and Deutsche Boerse have until Nov. 17 to offer remedies that appease European Union regulators on the deal, according to three people familiar with the situation. Concessions would have to eliminate concerns the combined company would monopolize derivatives trading in Europe, according to a separate person familiar with an antitrust complaint sent last month. The companies will meet EU officials next week.

NYSE Euronext Chief Executive Officer Duncan Niederauer said today on the company’s earnings call that the exchanges have overlapping equity options, stock futures and over-the- counter equities businesses. Deutsche Boerse owns Eurex, Europe’s largest derivatives exchange, while NYSE Euronext owns Liffe, the second-largest in the region.

“If you think about what we might be asked to do at some stage, it’s going to largely come down to how the markets are defined and whether we all agree on what the areas of overlap are,” Niederauer said. The companies have been working with the commission “to merely state the facts, stick to the facts, encourage everyone to use the same facts and be realistic about where we do overlap.”

Earnings Beat

The New York-based exchange operator’s third-quarter earnings, excluding some items, rose to 71 cents a share, compared with the 70-cent average analyst estimate, after the company trimmed costs and market volatility boosted trading volumes. The company also said today that it’s “confident” it will meet previously announced full-year 2011 expense projection of less than $1.650 billion.

“We had an excellent quarter, and year-over-year comparables were strong,” Geltzeiler said during the interview. “Everything flowed to the bottom line.”

While fourth-quarter costs may be higher, Geltzeiler said that much of it is due to “historical seasonality,” and reiterated the company is on track to meet its year-end cost estimate.

At a hearing in Brussels last week, Deutsche Boerse and NYSE Euronext defended their proposed deal against EU criticism it may harm competition and restrict innovation in financial markets. EU regulators can block anti-competitive deals, require companies to sell units or change the way they do business to eliminate antitrust concerns.

The European Commission’s antitrust complaint said the companies’ trading arms directly compete. That indicated the EU rejected claims the firms aren’t rivals on the grounds that Eurex, the derivatives exchange owned by the German company, specializes in longer-term debt products and NYSE’s Liffe focuses on short-term interest-rate contracts, a person familiar with the talks said last week.

Undermining Logic

“If we were ever asked to divest one of our two derivatives businesses -- while several of our competitors have expressed an interest in that for obvious reasons -- that would undermine so much of the logic of the combination that it would not be sensible,” Niederauer told analysts today on a conference call to discuss earnings.

The exchanges are still seeking to close the deal by the end of the year. The EU is set to rule by Dec. 22 and the State of Hesse, Deutsche Boerse’s regulator, will wait for the EU before making its judgment.

“We now need to have a state of play meeting and see where we are, which objections are still out there if any, before we even talk about any remedies,” Geltzeiler said.

--Editors: Andrew Rummer, Joanna Ossinger

To contact the reporters on this story: Nandini Sukumar in London at nsukumar@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net

To contact the editors responsible for this story: Andrew Rummer at arummer@bloomberg.net; Nick Baker at nbaker7@bloomberg.net


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