German and NY Stock Exchanges Plan Merger

Two of the world's leading stock markets, Germany's Deutsche Boerse and NYSE Euronext, plan to merge, creating the world's largest stock exchange operator, with dual headquarters in Frankfurt and New York. Officials at both companies said Tuesday the $10 billion all-stock deal should be completed by the end of the year, if regulators and shareholders agree.

The proposed new company, which would be the world's largest stock exchange, has no name yet, but officials at both Deutsche Boerse and NYSE Euronext sounded confident that shareholders and regulators on both sides of the Atlantic would approve. They said the merger will create a $5.4 billion company, the first truly global exchange, and lead to an additional $133 million in annual revenue and costs savings of $400 million by the third year.

"The beauty of this deal is that both parties honestly and openly want to cooperate on a global base," said Manfred Gentz.

Manfred Gentz is chairman of Deutsche Boerse.

"The combined group will be the most attractive partner for any future developments in Asia or other parts of the world," he said. "It will shape the entire industry. The group will play a leading role in all relevant market areas. It will create substantial growth."

Deutsche Boerse, as the larger partner, would own 60 percent of the new company, and control 10 of 17 seats on the board. Reto Francioni, head of Deutsche Boerse, would become group chairman, while NYSE Euronext's chief, Duncan Niederauer would be CEO. Niederauer called it a "win-win" and "good news" for NYSE Euronext shareholders.

"This not only creates the world's premier exchange group, but there's a word we all want you to focus on today, and that is 'diversified.' This will position us to compete on what is increasingly a global landscape, in a very competitive industry, and put us in position to compete with companies of similar size but from my mind, a much stronger portfolio," said Niederauer.

Critics of the deal say it's a takeover of an American institution, and they say the name, at least, should begin with "New York."

But Adelphi University visiting professor Michael Driscoll, a former senior managing director at Bear Stearns New York's trading desk, says the New York Stock Exchange, as it was traditionally known, has been gone for at least four years, and that the deal will have no effect on the national economy.

"It literally does not matter who owns the New York Stock Exchange," said Driscoll. "The New York Stock Exchange at this point in time is a piece of real estate in lower Manhattan at 11 Wall Street. That edifice that people still focus on as being kind of the center of the trading passed a long time ago. The global exchanges could be headquartered on Mars for all it mattered. It's not a significant factor any more in terms of what it means for the economy and what it even means for people's investments."

Shareholders of both companies will next have to vote on the deal, and following that, it will be reviewed by regulators on both continents. A rumored hostile takeover bid of NYSE Euronext by the Chicago-based CME Group is one possible complication. But Driscoll says the merger is already effectively a done deal, and that it is unlikely any government agency would act to stop or slow the merger.

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