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FACTDROP: Europe set to block DB-NYSE tie-up


Europe set to block DB-NYSE tie-up

Πηγή: FT
By Alex Barker in Brussels and Jeremy Grant in London
Jan 10 2012

European competition officials have recommended blocking the tie-up between Deutsche Börse and NYSE Euronext, the German and US exchange operators, setting in motion three weeks of frantic lobbying to salvage the deal.

Joaquín Almunia, the European competition commissioner, has told the merger parties that he plans to prohibit the bid to create the world’s biggest exchange group unless they are willing to sell-off one of the groups’ main derivatives businesses – a step executives refuse to take.

The antitrust decision is a serious blow to the likelihood that the German and US groups will be able to complete their deal, and highlights how competition concerns have emerged to help scupper a year-long wave of attempted exchange consolidation.

Investors sent NYSE shares up 3 per cent to $27.40 by midday in New York, while Deutsche Börse’s shares closed up 4.9 per cent at €42.

Mr Almunia’s case team have drafted an official recommendation to disallow the deal because it would create a dominant player in European exchange traded derivatives markets, stifling competition from potential new entrants, according to two people involved in the process.

A combination of the German and US groups would unite their two European futures exchanges, Eurex and Liffe, handing the combined entity more than 95 per cent of trading in benchmark short-term interest rate and German government bond futures.

Blocking the tie-up sends a signal to global derivatives exchanges that European antitrust authorities believe the time has come to take a stand against a business model that has allowed exchanges to build up dominant positions in futures trading.

Mr Almunia’s staff rejected arguments by Deutsche Börse and NYSE that the market for exchange-traded derivatives is global and the merged group would still face competition from CME Group in the US. They also refused to agree that off-exchange or over-the-counter derivatives competed against exchanges.

The draft decision has been sent to other Brussels departments for their comments before being submitted to a committee of competition experts from European Union member states, who can offer non-binding advice on the judgment.

There is still a slim possibility of the recommendation being overturned if the exchanges marshal enough political backing for the deal – particularly from Angela Merkel, the German chancellor – to sway opinion in Brussels.

The exchanges have signalled they are determined to see the process through to the bitter end and are mounting a vigorous lobbying campaign to win over key figures, including key EU commissioners, finance ministers and the leaders of France and Germany.

Deutsche Börse said the two groups had not yet received any decision from the European Commission regarding their requested merger of both companies. NYSE Euronext said it had not yet received any official such decision. A spokesperson for Mr Almunia declined to comment on the decision.

The formal approval for the prohibition is expected to be taken by the college of European commissioners on February 1, ahead of the February 9 deadline for a decision.

The recommendation by Mr Almunia’s department will be welcomed by exchange rivals, such as Nasdaq OMX and the London Stock Exchange.

Yet Europe’s move stands in contrast to the position in the US and Asia, where there are no imminent moves to open futures markets to wider competition. Industry experts say this could create an unlevel playing field for Europe.

Decisions to block mergers are extremely rare, not least because merger parties sometime withdraw their application if a negative decision looks unavoidable. It is even more unusual, but not unprecedented, for prohibition recommendations to be overturned at the last minute.

The antitrust decision comes almost a year after Deutsche Börse and NYSE Euronext unveiled a $9bn deal to create the world’s largest exchange that would be home to the most company listings and have four times the revenues of the LSE.

The German and US groups had offered two rounds of concessions to Brussels in an attempt to overcome competition concerns, including allowing rival bourses some access to the combined group’s German clearing house and selling some derivatives businesses.

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