By Nandini Sukumar and Edgar Ortega
Dec. 8 (Bloomberg) -- Exchange stocks, trading near the lowest on record relative to projected earnings, climbed after Deutsche Boerse AG said it explored a merger offer for NYSE Euronext.
The FTSE/Mondo Visione Exchanges Index, which tracks 17 publicly traded exchanges, rose 5.2 percent at 11:39 a.m. in London after people with knowledge of the matter said Dec. 6 that Deutsche Boerse had commissioned a study on combining with NYSE Euronext. Frankfurt-based Deutsche Boerse, Europe’s largest exchange by market value, said yesterday that talks with NYSE Euronext, the world’s biggest owner of stock exchanges, “ended without any conclusion.”
The prospect of uniting the Frankfurt stock exchange with NYSE Euronext’s four European bourses and the New York Stock Exchange may rekindle a $62 billion wave of consolidation among exchanges that started in 2006. Deals slowed since April as the MSCI World Index posted its steepest annual slump on record, losing 45 percent.
“Because of the high-profile nature of these two exchanges, just the fact that they’re having conversations will drive some of their competitors to think about what they have to do in response,” said Sang Lee, managing partner at financial- services consultant Aite Group LLC in Boston. “If the talks become serious, it could certainly drive higher the value of some of the shares.”
New York, Paris, Amsterdam
Deutsche Boerse surged 7.3 percent to 54.17 euros today, trimming its 2008 drop to 60 percent and valuing the exchange at 10.6 billion euros ($13.6 billion). That’s still the worst annual decline since the owner of the Frankfurt bourse went public seven years ago. NYSE Euronext, which operates stock markets in New York, Paris, Amsterdam, Brussels, and Lisbon, lost 76 percent this year for a market value of $5.7 billion.
The FTSE/Mondo Visione Exchanges Index plunged 70 percent this year amid concern trading will slow as hedge funds and brokers pare use of borrowed money to buy and sell assets. German stock-exchange trades dropped 49 percent to 137.4 billion euros in November from a year earlier, Deutsche Boerse said.
The company’s shares traded at 7.6 times projected earnings in October, the cheapest level on record, Bloomberg data show. The stocks fetched at least 14 times estimated profit last year. NYSE Euronext traded for as little as 5.6 times analysts’ projected profit for 2009 last month, while rival Nasdaq OMX Group Inc. fell to a record low of 6.9 times earnings.
‘Stocks Are Cheap’
Exchanges have struck more than 40 deals since the start of 2006, creating trans-Atlantic bourses such as NYSE Euronext, which handles daily equity trades from around the world worth about $81 billion. Frankfurt’s Eurex AG, which is partly owned by Deutsche Boerse, paid $2.79 billion last year for International Securities Exchange Holdings Inc., valuing the New York-based options exchange at about 40 times earnings.
“If consolidation is returning to the sector, then the stocks are cheap,” said Mamoun Tazi, a London-based exchange analyst at MF Global Securities Ltd. who has a “buy” rating on Deutsche Boerse. “That consolidation won’t be the same as it was three years ago. Everyone’s paper is now cheaper than it was in those boom days.”
Deutsche Boerse Chief Executive Officer Reto Francioni discussed the internal report at a Nov. 25 board meeting, according to people with knowledge of the situation who declined to be named because the study isn’t public. The plan suggests creating a Dutch-based holding company as a vehicle for the combination, which would be run by Francioni as chairman and the NYSE’s Duncan Niederauer as CEO, the German Der Spiegel weekly magazine reported on Dec. 6.
‘Number of Options’
“Deutsche Boerse group continually evaluates a number of options for all business in order to increase its value,” the exchange said in an e-mailed statement yesterday. “This naturally includes regular contact with various potential partners, one of which may have been the NYSE. If these talks indeed took place, then they ended without any conclusion.”
Richard Adamonis, a spokesman for NYSE Euronext, declined to comment.
The prospect of a drop in trading volume and increased competition from London-based Chi-X Europe Ltd. and Bats Trading Inc. of Kansas City, Missouri, are spurring exchanges to look elsewhere to bolster growth. Deutsche Boerse may study deals with London Stock Exchange Group Inc., New York-based Nasdaq OMX, and Chicago’s CME Group Inc., said James Angel, a finance professor at Georgetown University in Washington who follows exchanges.
“I would be surprised if they were only looking at the NYSE,” said Angel, who was a visiting economist at Nasdaq. “I would expect that every major exchange company is doing similar studies. With share prices as low as they are, you could argue that there are some good deals to be had.”
To contact the reporter on this story: Nandini Sukumar in Paris at nsukumar@bloomberg.net; Edgar Ortega in New York at ebarrales@bloomberg.net.
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