Bloomberg News

Deutsche Boerse-NYSE Takeover Vetoed by European Commission

February 01, 2012

(Updates with Commission comment in second paragraph, company comment in fourth, analyst comment in seventh.)

Feb. 1 (Bloomberg) -- European Union regulators vetoed Deutsche Boerse AG and NYSE Euronext’s plan to create the world’s biggest exchange after concluding that the merger would hurt competition.

The deal would have led to a “near-monopoly” in European exchange-traded derivatives, the European Commission said in an e-mailed statement today. “Any efficiencies would not be substantial enough to outweigh the harm to customers caused by the merger.”

Deutsche Boerse agreed to acquire its New York rival in a deal valued at $9.5 billion when it was announced last February. Since then, the value has plummeted to about $7.3 billion as Deutsche Boerse’s shares fell. The companies appealed directly to commission President Jose Barroso last month to try to salvage their merger, arguing that a ban would harm European exchanges and drive business to other parts of the world.

“This is a black day for Europe and for its future competitiveness on global financial markets,” Deutsche Boerse said in an e-mailed statement. “The EU Commission’s decision is based on an unrealistically narrow definition of the market that does no justice to the global nature of competition in the market for derivatives. We therefore regard the decision as wrong.”

Exchange Deals Thwarted

The merger prohibition is the commission’s fourth since 2004, when it overhauled its rules for reviewing deals.

Antitrust concerns have thwarted other exchange tie-ups around the world. Nasdaq OMX Group Inc. and IntercontinentalExchange Inc. abandoned an unsolicited bid for NYSE Euronext after the U.S. Justice Department threatened to sue. Singapore Exchange Ltd.’s $8.8 billion bid for ASX Ltd. collapsed after Australian Treasurer Wayne Swan said the deal wasn’t in the national interest.

“I fully expect consolidation to continue in the industry,” said Richard Perrott, an analyst at Berenberg Bank in London. “This last year was a disaster for the exchanges that wanted to merge, but in this deal it was clear from the start it was going to be tricky. You were looking to combine the two dominant derivatives exchanges in Europe.”

Exchange-Traded Derivatives

Deutsche Boerse’s acquisition of NYSE Euronext would have put more than 90 percent of Europe’s exchange-traded derivatives market and about 30 percent of stock trading in the hands of one company. Deutsche Boerse’s Eurex is the region’s biggest derivatives exchange, while NYSE’s Liffe is the second-largest.

NYSE Euronext and Deutsche Boerse had offered to sell overlapping businesses and give rivals access to post-trade services as they struggled to convince regulators that the merger wouldn’t stifle competition in derivatives and clearing. The commission told the companies in December that the concessions didn’t go far enough, two people familiar with the discussions said.

“We tried to find a solution, but the remedies offered fell far short of resolving the concerns,” said Competition Commissioner Joaquin Almunia in the commission’s statement today. “These markets are at the heart of the financial system and it is crucial for the whole European economy that they remain competitive.”

Overlapping Businesses

The exchanges had offered to cap fees on derivatives trading and clearing for three years, sell NYSE’s Liffe single- stock derivatives business and license the Eurex trading system to a third party, people familiar with the talks said.

Antitrust officials investigating the case had previously indicated the exchanges would have to divest an entire derivatives business such as Liffe or Deutsche Boerse’s Eurex, the people said. The chief executive officers of both exchanges said they weren’t prepared to consider that option.

NYSE and Deutsche Boerse also offered to give any buyer the option to access Eurex Clearing for post-trade processing.

Today, both exchanges said they will focus on their standalone strategies and are negotiating to terminate their merger.

NYSE said it will resume a $550 million stock repurchase program after it reports earnings on Feb. 10 and after the agreement is formally terminated. Deutsche Boerse reports earnings Feb. 13.

--Editors: Will Hadfield, Andrew Rummer

To contact the reporters on this story: Aoife White in Brussels at awhite62@bloomberg.net; Nandini Sukumar in London at nsukumar@bloomberg.net

To contact the editors responsible for this story: Andrew Rummer at arummer@bloomberg.net; Anthony Aarons at aaarons@bloomberg.net


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