Thu Feb 10th, 2011 at 05:49:36 AM EST
Deutsche Börse AG, the owner and operator of the Frankfurt Stock Exchange (FWB Frankfurter Wertpapierbörse), is in advanced merger talks with NYSE Euronext, the owner and operator of the New York Stock Exchange.
The deal would create the "world's largest financial market," the New York Times reports. "Deutsche Börse would own as much as 60 percent of the new company, which would be incorporated in the Netherlands," leaving a symbolic satellite "headquarters" in Lower Manhattan for the Americans.
"Die Deutsche Börse will die New Yorker NYSE schlucken. / The German stock market will swallow the New York Stock Exchange", Der Spiegel reports.
"The global capital markets would benefit from the creation of the most efficient, transparent and well-regulated markets for issuers and clients around the world," the two corporations said in a joint statement without a hint of sarcasm.
Hooray! Just the thing to create more jobs. Another set of international financial institutions staged to grow 'too big to fail' and too big to regulate.
This news follows after Wednesday's announcement of a merger by the London Stock Exchange and the Toronto Stock Exchange's parent TMX Group.
The NYT reports:
"There is a race toward exchanges becoming ever bigger," said Elie Darwish, an analyst at Exane BNP Paribas in Paris. "This would give NYSE Euronext-Deutsche Börse an unchallengeable position."
The iconic NYSE is facing competitive pressures from electronic trading firms that have challenged its position in the market. "The New York Stock Exchange is a giant among exchanges, yet in a world of around-the-clock trading and rapid-fire algorithmic programs, its significance to investors has diminished," the NYT reports.
"The NYSE has no future solo," according to Spiegel. "Their market share is shrinking. The traditional stock trading is becoming less important... The telegenic trading floor... has long been a thing of the past and will soon disappear altogether."
Yet, the combination of the NY-Frankfurt Stock Exchanges and the London-Toronto Stock Exchanges "will create markets that control trading in companies worth more than $20 trillion, or about 36 percent of the world's stock-market value", Bloomberg reports. But, "what may prove more lucrative is ownership of growing venues for trading options, futures and derivatives whose profit margins are 57 percent more than equities at NYSE Euronext."
The deal "throws down the gauntlet to their arch rival CME Group, because it promises to create a dominant player in European derivatives as a counterweight to the CME's dominance in the US," the Financial Times reports. Nothing like greed-driven profits in the largely unregulated derivatives markets to drive the world's financial systems to brink of collapse. No worries there.
In addition to the merger being subject to a vote by shareholders of the two corporations, the Deutsche Börse and NYSE Euronext deal will face regulatory scrutiny and politics on both side of the Atlantic, the Wall Street Journal reports. In the United States, the Security and Exchange Commission will have to approve the deal for it to take place and the Department of Justice is expected to give an "extended antitrust review".
The transaction would likely also get a close review by the Committee on Foreign Investment in the United States, which is an interagency committee led by the Treasury secretary that looks for possible national-security concerns raised by transactions that give foreign entities control over U.S. businesses.
"There is very little argument or debate that the financial system has a national-security aspect," said Farhad Jalinous, a national-security lawyer at Kaye Scholer LLP. "When you're talking about the biggest stock exchange in the world, I'd not be at all surprised if the government takes the view that this is critical infrastructure."
Nah, it's not like the investment bankers would put any nation's economy in such jeopardy that it would demand the unprecedented immediate infusion of billions back by taxpayers or else they'd collapse the world economy or anything. Why would any self-respecting, so-called democracy even question such a merger?
Analysts fear "political opposition in Washington" because Deutsche Börse's shareholders would control 59 to 60 percent of the combined company, the FT reports. "'The U.S. shareholders lose their majority control,' complained the whole CNBC Wednesday," Spiegel reports.
"Exchanges are already too powerful," writes Jon C. Ogg of the 24/7 Wall St. blog. "The bad news here is that the world of financial exchanges could literally consolidate down into too few players that are too powerful. When is enough enough and when will a regulatory body out there finally recognize that large mergers are not usually that great?"
Don't be alarmed. Really this is for everyone's good. After all, Reto Francioni of Deutsche Börse would serve as chairman and be based in Frankfurt and Duncan Niederauer from NYSE Euronext would stay in New York as chief executive, according to Deutsche Welle.
There is "'good support' at the highest political level in Germany" for the deal, according to anonymous FT sources. For its part, the European Commission, the executive branch of the European Union, will likely conduct an intensive, three-to-five month antitrust review of the merger as well, the WSJ reports.
"It would be a very complicated deal likely to require a detailed Phase 2 investigation by the European antitrust regulator," said Simon Holmes, partner and head of the EU and Competition department in the London office of international law firm SJ Berwin.
For its part, NYSE Euronext is the result of the NYSE 2006 acquisition of Paris-based Euronext.
Shares of Deutsche Börse closed up 2.45 percent and NYSE Euronext closed up 14.04 percent on news of the merger talks. Good times for rich corporate investors.
News of the announcement was bumped up to yesterday, according to Spiegel, to squelch "stock market whisperers" spreading rumors and to counter the London Stock Exchange Toronto Stock Exchange merger news. "Actually they wanted to announce the coup until next week, as a fait accompli."