05 June 2006

FT: Euronext, Borsa Italiana in talks

Euronext wants to strengthen its hand in merger negotiations with the New York Stock Exchange by first completing an acquisition of Borsa Italiana, the stock exchange in Milan. The heads of Borsa Italiana and Euronext are scheduled to meet on Tuesday, people close to the talks said. An acquisition of the Milan exchange would allow Euronext to appoint 10 of the 21 board members in a combination with NYSE, an increase on the current nine it has been allocated.

That would make the transaction more a merger of equals and help explain why NYSE is not paying Euronext shareholders a premium for a change of control.

Euronext said on Monday the company was not looking to hurry through a deal with the Italian bourse, but said it preferred to conclude a deal before the NYSE transaction was completed. The NYSE transaction needs approval from regulators in five countries and from shareholders.

NYSE and Euronext last week reached a definitive agreement to merge, paving the way for the first transatlantic stock and derivatives exchange which will be worth more than $ 21bn. The Deutsche Börse has also made a bid for Euronext and could yet launch a counter offer.

People close to Borsa Italiana, while admitting that Euronext is the exchange’s preferred partner, say some in Milan are resisting being pushed into a deal in haste. The process of consolidation was also encouraged last week in a speech by Mario Draghi, the new governor of the Bank of Italy.

Borsa Italiana customers said there were issues to be resolved before a deal could be concluded.

The Borsa operates a so-called “vertical silo” of trading and post-trading services. Although Euro-next owns 41.5 per cent of its own clearing operation, that stake is expected to decline and the company has said it does not want to be involved in post-trading services. The Borsa may have to find a buyer for its clearing and settlement services.

Tariffs at the Borsa Italiana are also the lowest of any large European exchange, and customers are expected to object strongly if they are raised to bring them into line with those charged by Euronext.

Borsa Italiana says it is keeping its options open and could still decide on an alliance with other exchanges such as Deutsche Börse.

The Milan exchange’s original intention to launch an initial public offering before being acquired now seems less likely. It had said an IPO would be an aid to consolidation as it would make it easier to value the Borsa. Financiers had estimated the Borsa could be worth more than € 1bn.

Spain’s stock market operator Bolsas y Mercados Españoles on Monday approved a proposal to list a stake of at least 33 per cent on its own exchange and to pay shareholders a special dividend once it completed the offering.
By Adrian Michaels in Milan and Norma Cohen in London

© Financial Times