The New York Stock Exchange (NYSE) yesterday unveiled an €8 billion stock and cash offer for Euronext, trumping Deutsche Boerse's proposal and taking a major step toward building the first transatlantic stock exchange.
The proposed "NYSE Euronext" alliance would create a mammoth exchange listing companies with total market value of about $27 trillion, nearly triple the value of shares on the London Stock Exchange. The company would be based in New York, but preserve Euronext's federated model.
NYSE would also gain London-based Euronext.liffe, the world's second-largest options and futures exchange after the Chicago Mercantile Exchange. NYSE said it could complete the transaction by the end of this year.
Euronext said its supervisory and managing boards considered the NYSE proposal to be "the most attractive combination" after reviewing proposals from Deutsche Boerse and NYSE Group.
The proposals are to be discussed with shareholders at Euronext's annual general meeting today. The operator of the Paris, Amsterdam, Brussels and Lisbon exchanges has advised investors to vote against the Deutsche Boerse approach.
"It is not enough to build the best marketplace in the US or a champion of Europe," NYSE chief executive John Thain said. "The challenge is to build the best marketplace in the world."
Euronext shares dropped more than 9 per cent as NYSE's offer fell short of market speculation. The NYSE officials said they did not intend to raise their offer.
The NYSE's proposal is the latest salvo in the accelerating consolidation of exchanges worldwide, as these market operators seek economies of scale and more trading volume.
Euronext, which was rebuffed by the London Stock Exchange, first turned to Deutsche Boerse and then the NYSE. Euronext shares, up nearly 70 per cent since the start of the year, closed down 9.5 per cent at €67.55 as NYSE's offer came in below Euronext's Friday closing price.
Traders had expected the NYSE to offer a one-for-one share swap plus cash, for a bid of as much as €90, analysts said.
Under the NYSE proposal, each share of NYSE Group will be converted into one share of NYSE Euronext.
Euronext ordinary shares will be exchanged for a 0.98 share of NYSE Euronext stock and €21.32 in cash.
The offer valued Euronext at €8 billion, or €71 per share, based on NYSE's Friday closing price, and about €75 a share including dividends.
"It's a good deal for Euronext, it's what they were looking for," said analyst Mamoun Tazi at Man Securities, who expects Deutsche Boerse to counterbid. "You have the synergies. In effect you have an additional 15 per cent upside to the Euronext share price on the close."
Mr Thain assured the deal was also good for NYSE shareholders, as the proposed merger would boost NYSE earnings by 14 per cent next year and 21 per cent in 2008, he said. The NYSE projected $275 million (€215 million) in cost savings and $100 million in new revenue.
Mr Thain said he would rule out more acquisitions for some time. The NYSE expects to issue debt to help fund the merger, though exchange officials said any debt could be paid down quickly.
NYSE shares were down $1.65, or 2.56 per cent, to $62.85 at the close of trading yesterday, swinging from earlier gains of more than 5 per cent. Analysts said the battle for Euronext had just begun, with both NYSE and Deutsche Boerse likely to raise their bids.
"We do not believe Deutsche Boerse will just roll over," said Bear Stearns analyst Daniel Goldberg. "We do not believe this is a done deal."
The NYSE, which is integrating its Archipelago deal and scrambling to roll out its hybrid trading system, would also face Euronext integration challenges.
Euronext and Deutsche Boerse have been in talks for months, but the discussions have stumbled on a number of issues, including the location of headquarters.
On Friday, Deutsche Boerse proposed a joint holding company managed from Frankfurt with cash trading and listing activities in Paris.
Euronext dismissed Deutsche Boerse's offer as "nothing new". Deutsche Boerse stock dropped 7 per cent to €103.60 yesterday amid concern it will not reach an agreement with Euronext.
The German exchange operator denied a report it was considering a €90 bid for Euronext.
A source told Reuters the exchange considered its existing offer, valued at €66-€67, to be fair.
But Mr Herr said KBW estimated that Deutsche could realisse €480 million in synergies, allowing it to raise its bid.
In the NYSE's offer, Mr Thain would become the combined company's chief executive, with Euronext chairman Jan-Michiel Hessels becoming its chairman and Euronext chief executive Jean-Francois Theodore becoming deputy chief executive with responsibility for Europe.Nasdaq shares fell nearly 7 per cent on the news.
