Germany OKs NYSE-Deutsche Boerse Merger

| About: NYSE Euronext (NYX)

NYSE Euronext Inc.’s (NYSE:NYX) proposed merger with Deutsche Boerse reached one more milestone, yesterday, when it received the green signal from Germany’s Federal Financial Supervisory Authority (BaFin). It has thereby cleared one of the significant regulatory hurdles in Europe.

Last month, the Committee on Foreign Investment (NYSE:CFI) in the US had also granted its approval for the merger. Previously, in July this year, both NYSE and Deutsche received the consents of their respective majority shareholders. The sanction from BaFin is another shot in the arm for the merger.

While a spate of merger and acquisition activities was witnessed in the past three quarters, most of them never saw the light of day due to regulatory snags. The London Stock Exchange failed to take over Canada’s TMX Group. The Singapore stock exchange was also unable to acquire Australian stock exchange owing to opposition from regulatory authorities in both the countries.

Even NASDAQ OMX Group Inc. (NASDAQ:NDAQ) and IntercontinentalExchange Inc.’s (NYSE:ICE) premium-priced joint takeover bid was repeatedly opposed by NYSE on antitrust issues.

However, the NYSE-Deutsche merger has been successfully crossing hurdles since February this year.

Solid Stock Exchange Ever

The NYSE-Deutsche merger is expected to be the most solid business combination in the history of global stock exchanges. Based on 2010 net revenues, the prospective merger will earn approximately 37% of total revenue from derivatives trading & clearing, 29% in cash listings, trading & clearing, 20% in settlement & custody and 14% in market data, index & technology services.

Moreover, the prospective merger is expected to generate full run-rate cost synergies of €400 million ($580 million) along with €150 million ($218 million) in revenue synergies.

Final Clearance Awaits in Europe

Although the parties-to-merge have been putting in their best to clear all hurdles, the fate of the merger still depends on the ongoing probe by the European Union Commission (EUC).

The EUC fears that the merger has the makings of growing into a monopolistic model in future, primarily with the fusion of NYSE Liffe and Deutsche Boerse’s Eurex derivative markets. Hence, the EUC had already made it very clear in March this year that the deal could undergo a delay on grounds of regulatory impediments arising out of extensive reviewing.

The EUC antitrust commission is probing the matter and expects to come out with a viable solution that could include clearing an operation or setting conditions such as the selling of some assets, in order to mitigate competition concerns.

With respect to this, however, recently Reuters reported that the EUC could allow the smooth advancement of the merger as the latter intends to propose the financial reforms next month, which may provide new rules for clearing, indexes and data. These reforms could also open up competition for the combined group as well as the whole market. EUC is expected to give out its report card by December 13, 2011.

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