06 June 2006

Reuters: NYSE to buy Euronext

Euronext on Friday said it was committed to its tie-up with the NYSE Group Inc., creating the first transatlantic stock exchange, but rival merger partner Deutsche Boerse remains in the frame as a potential threat. While Euronext said it was no longer in merger discussions with Deutsche Boerse, the German exchange has not given up trying to secure its own tie-up with the Paris-based exchange, a source familiar with the situation said.

Under Thursday’s deal, presented as a merger of equals, the NYSE will buy Euronext for about 7.9 billion euros (5.4 billion pounds), creating a company with a market capitalisation around $20 billion (10.6 billion pounds).

NYSE’s chief executive John Thain told a news conference held jointly by NYSE and Euronext management at the Paris bourse on Friday that its deal was key for the Big Board’s strategy to diversify its product base and geographic reach.

'We wanted a linkage into Europe because of the importance of the Euro as a global currency and in terms of the strength of the European economy,' Thain said. 'We also wanted to get into the derivatives business ... From a strategic fit ... it is a very good match and a very good marriage.'

The combined entity will provide the NYSE with a European bridgehead for international public offerings, which the bourses hope will attract companies deterred from listing in New York because of strict U.S. regulation.

Pressure has been building on stock exchanges globally to merge to cut costs and speed up the execution of transactions.

'We believe this gives opportunities for global leadership,' said Euronext Chairman Jan-Michiel Hessels, who will chair the combined company.

The groups will combine their three cash trading systems and three derivatives trading systems into two global platforms, one for cash trading and the other one for derivatives.

NYSE’s offer represents a 1.2 percent discount to Euronext’s current share price, but a 3.2 percent premium when adjusted for a 3 euro dividend, which Euronext plans to pay in August.

Euronext did not shut the door on the German exchange. Chief Executive Jean-Francois Theodore said they would welcome an offer from Deutsche Boerse provided it was based on Euronext’s federation business model which has a single trading platform but with individual markets remaining regulated locally.

'Nothing is a certain in life until completely done,' said Richard Repetto, analyst at Sandler O’Neill in New York. 'I’m not sure whether Deutsche Boerse will chose to battle but they certainly could -- the deals are so similar.'

Deutsche Boerse’s complex cash and share offer effectively values Euronext at about 7.95 billion euros, based on a weighted average of Boerse’s share price over 90 days, calculated by Reuters. For more details Talks between Euronext and Deutsche Boerse had stumbled over disagreement about the model for a combined exchange.

Deutsche Boerse said it still 'believes in the substance and value of a transaction with Euronext' but did not indicate whether it would come forward with another bid.

A source familiar with the matter said Boerse remains focussed on a Euronext deal and is likely to try convincing Euronext shareholders and other stakeholders such as users and politicians to accept its current proposal over NYSE’s before it considers raising its offer.

Hessels told reporters that Euronext was no longer in merger discussions with Deutsche Boerse. But Euronext said there was no break-up fee in the NYSE/Euronext combination.

Theodore also said the new Euronext NYSE group would be open to the possible acquisition of the Italian stock exchange.

'We are going to start (talks with Borsa Italiana) very soon, in the next few days,' he said.

Euronext shares rose 3.3 percent on Friday to 71.15 euros. NYSE traded up $2.68, or 4.29 percent, at $65.13 in late afternoon trading.

Analysts said the London and German exchanges were in danger of looking lightweight next to the NYSE/Euronext combination.

'The latest move in this global game of chess has left the London Stock Exchange and Deutsche Boerse with a strategic problem: Not to act could be dangerous for their futures,' said Richard Hunter at Hargreaves Lansdown Stockbrokers.

The race for consolidation accelerated earlier this year when Nasdaq Stock Market Inc. , the second-biggest U.S. equities exchange, bid for the LSE but was rebuffed. Nasdaq has since built a stake of more than 25 percent in the LSE, but under rules cannot launch a take-over bid for six months.

If the LSE and Nasdaq got together, they would create a company worth about $9 billion based on current prices, with a strong focus on equities.

Alternative tie-ups may include one between the Chicago Mercantile Exchange -- which sources familiar with the matter said is interested in expanding in Europe and had held informal take-over talks with Euronext and Deutsche Boerse.
By Megan Davies and Marie Maitre
(Additional reporting by Peter Starck, David Cullen, Sudip Kar-Gupta, Mark Meadows and Mathieu Robbins)

© Reuters