NYX Nyse Euronext

Yesterday, NYSE Euronext Inc. (NYX) reached another milestone on receiving a green signal for its merger with Deutsche Boerse from the Committee on Foreign Investment (CFI) in the US.

The CFI is a prime regulatory body in the US comprising government officials representing the justice, commerce, state, defense and homeland security departments. The board of CFI scrutinizes all the international mergers made by the US-based organizations.

Both NYSE and Deutsche Boerse successfully completed the first lap when last month both the companies managed to attain the consent from their respective majority shareholders. The sanction from CFI has been a further impressive advancement in this merger process.

While a roar of merger and acquisition activities took place in the past three quarters, most of them never saw light due to the regulatory snags, which reflects the significance of the regulatory processes. The London Stock Exchange failed to take over Canada’s TMX Group and 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. (NDAQ) and IntercontinentalExchange Inc.’s (ICE) premium-priced joint takeover bid was repeatedly rejected by NYSE on multiple antitrust issues.

However, the NYSE-Deutsche Boerse merger has been strategically and successfully crossing all hurdles since February this year, ever since it got into an approximate $10 billion deal.

Strongest Exchange Merger Ever

The NYSE-Deutsche Boerse merger is expected to be the most solid business combination in the history of the 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.

Aiming for European Clearance

Although the parties-to-merge have been putting in their best to clear all hurdles, the fate of the merger still dangles over the ongoing probe by the European Union Commission (EUC) that could hinder the progress.

The EUC fears that the merger provides ample scope for 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 deeply probing into 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.

Additionally, a blockage of the deal is also possible, if the companies involved do not commit to solve these concerns, although such a scenario is an unusual one. EUC is expected to give out its report-card by December 13, 2011.

Overall, as a result of these issues, the antitrust commission in EUC has taken up a multi-phase regulatory probe due to which the deal is not expected to be completed before the end of this year.

 
INTERCONTINENTL (ICE): Free Stock Analysis Report
 
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NYSE EURONEXT (NYX): Free Stock Analysis Report
 
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