The Warsaw Stock Exchange (GPW) and the Vienna bourse are discussing a merger that would create a hub for equities trading and initial share offerings in central and eastern Europe, said three people familiar with the talks.
Discussions between management and owners of the Vienna and Warsaw exchanges are at a very early stage, said the people, who asked not to be identified because the talks are private. The negotiations may not lead to a transaction, the people said. The Warsaw Exchange rose 0.8 percent to 38.90 Polish zloty at the 5:30 p.m. close in Warsaw, valuing the company at 1.63 billion zloty ($520 million).
The talks come after years of rivalry between the two for influence in the region. Vienna expanded by buying the bourses in Ljubljana and Prague in 2008 and Budapest in 2004, beating Warsaw’s bid for Prague. While Vienna and Prague had one initial public offering apiece since 2011, Warsaw attracted 41 as it lured companies by offering access to Poland’s cash-rich pension and mutual funds.
“Creating one hub for the region would be a great opportunity for the company to grab investors’ interest more efficiently than now,” said Piotr Palenik, a Warsaw-based analyst at ING Securities SA. “The key point is where the decision center would be located after a merger. Market dynamics are in favor of Warsaw, and the company should use this argument to be in charge of the unified platform for the region.”
Michael Buhl, chief executive officer of the Vienna bourse’s parent company, CEE Stock Exchange Group, will meet Warsaw’s new CEO, Adam Maciejewski, in coming days, Vienna exchange spokeswoman Beatrix Exinger said by telephone today. CEE Stock Exchange Group is interested in cooperation with Warsaw, she said, declining further comment.
“We are ready to cooperate with Vienna, but that’s all I can say today,” Warsaw Stock Exchange Deputy CEO Beata Jarosz said during a panel discussion on Polish capital markets in London. “We’re observing what’s happening in Europe and we’re ready to participate in pan-European consolidation.”
CEE Stock Exchange Group stands for Central and Eastern Europe Stock Exchange Group and is based in Vienna. The holding company is largely owned by Austrian banks and by companies listed on the Vienna bourse, with UniCredit SpA (UCG), Erste Group Bank AG and Vienna Insurance Group AG the biggest shareholders.
CEE Stock Exchange Group said in March last year that it’s open to holding “merger of equals” talks with the Warsaw Stock Exchange, its biggest rival. Prior to the Warsaw bourse’s IPO in 2010, Vienna had been interested in buying it. The CEO of Erste, which is also one of Vienna’s biggest shareholders, said in January that he would welcome the two bourses merging.
“This could be an interesting idea,” Polish Deputy Treasury Minister Pawel Tamborski said in an interview in London, when asked about merger talks. “I don’t have any specifics. I know too little about it now.”
IntercontinentalExchange Inc.’s $8.2 billion agreement in December to buy NYSE Euronext has ignited a fresh round of talks for exchange companies -- already the subject of $50 billion in attempted takeovers in the past three years. European Union regulators blocked Deutsche Boerse AG’s takeover of New York- based NYSE Euronext in February 2012, citing concern that it would harm competition.
CME Group Inc. (CME:US), the world’s largest futures exchange, approached Deutsche Boerse to consider merger talks, four people familiar with the situation said in February. Hong Kong Exchanges & Clearing Ltd. (388), the world’s largest bourse by market value, completed the $2.2 billion takeover of the London Metal Exchange in December.
Both Warsaw and Vienna could also become targets of one of their bigger rivals, according to Peter Lenardos, London-based analyst at Royal Bank of Canada. “It probably puts them both in play,” he said. “Who would be interested? Deutsche Boerse could take a look, maybe the Swiss and maybe the Japanese.”
The Warsaw Stock Exchange, central Europe’s biggest equity market, lists about 438 companies on its main market, including PKO BP (PKO), the largest Polish bank, and PZU SA (PZU), the country’s biggest insurer, with a combined value of about 692 billion zloty. The number of companies doubled in the last decade, with 81 new listings in 2007 and 3 so far this year.
The exchange, created in 1991 to facilitate privatization, is controlled by the Polish Treasury, which holds 35 percent of its shares and a voting majority. The treasury considered selling a controlling stake in the exchange to Deutsche Boerse in 2009, then opted for an IPO in late 2010.
In 2010, the Warsaw bourse entered a strategic partnership with NYSE Euronext and decided to purchase NYSE’s trading system. The technological change, which will allow Warsaw to accept high-frequency orders, is scheduled to take place April 15. In 2009, the company bought MTS-CeTo, a platform for Polish government-bond trading, from Italy’s MTS SpA and local banks.
The combined domestic market capitalization of Vienna, Prague, Budapest and Ljubljana was 130 billion euros ($170 billion) at the end of January, according to the most recent data on CEESEG’s website, which is roughly equivalent to Warsaw’s 514 billion zloty at the end of March. Trading volume at the Vienna-led group amounted to 6 billion euros in January and February, compared with about 8.9 billion euros in Warsaw.
Founded by Empress
The Vienna bourse was founded by Empress Maria Theresa in 1771, when the Hapsburg Empire encompassed Austria, Hungary, Croatia, Bohemia, as well as parts of today’s northern Italy, Belgium and Poland. It initially focused on bonds and currencies, and stock trading started in 1818.
After the breakdown of Austria-Hungary following the first World War, Vienna remained a trading center for companies from the empire’s successor states such as Hungary, Czechoslovakia, or what was then Yugoslavia. By 1937, 75 of the 205 stock listings were from those states, according to the exchange’s website.
The biggest companies listed in Vienna are Erste, eastern Europe’s third-biggest lender, and oil and gas group OMV AG. Prague’s bourse is dominated by utility CEZ AS (CEZ), and Budapest by Mol Nyrt and by OTP Bank Nyrt.
The Vienna group’s 239 listings are about half of Warsaw’s. AMAG Austria Metall AG (AMAG)’s IPO in April 2011 was Vienna’s most recent debut, and the first since October 2007.
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