Deutsche Boerse Said to Be Studying Merger With NYSE Euronext

By Nandini Sukumar

Dec. 6 (Bloomberg) -- Deutsche Boerse AG, Europe’s biggest exchange by market value, is studying a merger offer for NYSE Euronext, operator of the world’s largest stock market, according to four people with direct knowledge of the situation.

The Frankfurt-based exchange commissioned an internal study on the feasibility of combining with its U.S. rival, the people said. Deutsche Boerse Chief Executive Officer Reto Francioni discussed the report with directors at a Nov. 25 board meeting, according to the people, who declined to be named because the study isn’t public. Any plans are at an early stage, they said.

Deutsche Boerse, which runs the Frankfurt stock exchange and is part-owner of Europe’s largest futures market, and NYSE Euronext, the owner of the New York Stock Exchange and markets across Europe, have held merger talks, Der Spiegel magazine reported, without citing anyone. A combination may help the exchanges reduce expenses after their shares declined more than 62 percent this year.

“Certainly it would be easier to cut costs through a merger and certainly there would be an excellent business there,” said Mamoun Tazi, a London-based exchange analyst at MF Global Securities Ltd. Still, “the probability of this happening is low due to a number of reasons, including the German and U.S. regulators,” said Tazi. He rates Deutsche Boerse a “buy.”

Paris, Amsterdam, Brussels

A merger would cement control of Europe’s biggest markets in stocks, options and futures for Deutsche Boerse and unite rivals who battled for months over Paris-based Euronext NV before NYSE Group Inc. received approval in 2007 for a $13 billion takeover. Antitrust concern over Deutsche Boerse’s offer helped NYSE gain control of Euronext, the operator of the Paris, Amsterdam, Brussels and Lisbon stock markets.

Alternative trading systems such as Chi-X Europe Ltd., Bats Trading Inc. and Tuquoise are now eating into revenues for the two exchanges, while Nasdaq OMX Group Inc. has gained business from NYSE Euronext in the U.S.

“We have nothing to announce and, as a general policy, don’t comment on speculation,” Deutsche Boerse spokesman Ruediger Assion said today in an e-mailed statement. “Deutsche Boerse Group is constantly evaluating a multitude of options to enhance the value of the company. This includes frequent contacts with almost every major market participant.”

Antoinette Darpy, a Paris-based spokeswoman for NYSE Euronext, declined to comment.

Previous Bids

Deutsche Boerse has been thwarted in bids to acquire exchanges this decade. Prior to withdrawing its offer for Euronext, it unsuccessfully pursued the London Stock Exchange in 2000 and again in 2004. In August 2004, SWX Group, operator of the Swiss stock exchange, rejected a proposal to start merger talks with Deutsche Boerse. An attempt to join with Borsa Italiana SpA fizzled two years later.

The German exchange acquired New York-based International Securities Exchange Holdings Inc. last year.

The enlarged company would be run by Francioni as chairman and the NYSE’s Duncan Niederauer as chief executive officer, with an eight-person board and an 18-member directorate, Spiegel said. The exchanges would create a Dutch-based holding company as a vehicle for the combination, Spiegel said. The new company would run its share trading from New York and its derivatives business from Frankfurt, it said.

Rout in Stocks

This year’s rout in equities reduced trading on Deutsche Boerse, spurring pressure from shareholders to boost returns. The company’s shares have dropped almost 63 percent this year, valuing Deutsche Boerse at 9.8 billion euros ($12.5 billion). That compares with the 48 percent retreat in the Dow Jones Stoxx 600 Index. NYSE Euronext declined 76 percent, valuing the company at $5.7 billion.

The German bourse has fought over strategy with its two biggest shareholders, New York-based Atticus Capital LLC and London-based Children’s Investment Fund Management LLP. Deutsche Boerse said in October the hedge funds have “repeatedly” called for a breakup of the group. In November, Francioni said third-quarter results were “proof of the stability and sustainability of the business model of Deutsche Boerse.”

The company last month posted third-quarter profit that beat analysts’ estimates as the turmoil in financial markets boosted derivatives trading, offsetting slowing trading volume from equities at the Frankfurt stock exchange and the Xetra electronic trading platform. Deutsche Boerse is also part-owner of Eurex, Europe’s largest futures market.

New York-based Nasdaq in February extended its global reach by purchasing Sweden’s OMX AB, which runs bourses in seven European cities including Helsinki and Copenhagen. In September, Nasdaq introduced a trading platform to expand beyond Nordic markets and compete against London Stock Exchange Group Plc, NYSE Euronext and Deutsche Boerse.

To contact the reporter on this story: Nandini Sukumar in Paris at nsukumar@bloomberg.net.