As reported by the Network last month, the proposed merger between NYSE Euronext and Deutsche Boerse (DB) was in jeopardy as Juan Alumnia, head of the European Union’s Competition Commission, publicly stated that he would recommend prohibiting the deal from going forward. On February 1, the commission officially blocked the proposed merger that would have created the world’s largest exchange operator. As a result of the decision, NYSE Euronext announced that “both companies have agreed to a mutual termination of the business combination agreement originally signed by the companies on February 15, 2011.”
The European Commission worried that allowing the merger would permit the newly created exchange operator to dominate the derivatives market. The Commission hinted that should either merging party have divested itself of one of its derivative trading arms, the Commission would have been more inclined to allow the merger. However, both parties refused to do so. In explaining the Commission’s decision to block the merger, Mr. Alumnia stated that the firms “offered remedies limited in their scope.”
Deutsche Boerse responded to the Commission’s decision with a decidedly defiant tone, referring to the Commission as “out of touch with reality.” DB went further to say “[t]his is a dark day for Europe and its future competitiveness on global financial markets,” and that the “Commission’s decision is based on an unrealistically narrow definition of the market that does no justice to the global nature of competition in the market for derivatives.” NYSE responded similarly, stating that the decision was “based on a fundamentally different understanding of the derivatives market.”
Market analysts have stated that the EU Commission’s decision may have been for the best for DB, which derives its economic vitality from the wide range of trading activities, while NYSE derives more than one-half its revenue from low-margin, stock trading activity.
Going forward, both companies have indicated a desire to increase their business through smaller acquisitions. Ed Ditmire of Macquarie Securities opined that NYSE may look to other American exchanges to increase its presence in commodities and future trading. Furthermore, analysts believe that to bolster its stock price, NYSE Euronext will return to its wheelhouse: cost-cutting. Richard Repetto, an analyst with Sanders O’Neill & Partners, believes that with the merger deal by the wayside, NYSE Euronext will “return to its multiyear cost-reduction program that similar (if not better) cost efficiencies can be attained in the coming years.”