Exchange Merger: OMX and IntercontinentalExchange (ICE) Make Hostile Bid for NYSE Euronext

Last February Deutsche Börse AG and the NYSE Euronext, announced the highly anticipated, highly covered $10 billion deal to create the biggest exchange operator in the world. However, a steady steam of rumors surfaced before the negotiations closed that either OMX of IntercontinentalExchange (ICE) might make a hostile bid for the company. As it turns out, on April 1, 2011 OMX and ICE placed a joint bid on the NYSE Euronext offering 19 percent above Deutsche Börse’s bid and 27 percent above the share prices of Euronext before the deal was announced in February.

The 34-page proposal dubbed “A Superior Alternative for Global Markets: Growth, Competition, and Stockholder Value” proposes splitting up Euronext, with ICE primarily controlling the derivatives business, and NYSE Liffe. NYSE would control the stock exchanges and American-based options trading. According to The Economist, the skeptics may have the upper hand in the debate as to whether this proposed merger would have any traction.

First, the regulatory hurdles that the proposed merger would have to surmount may be too much to overcome in the political realm. For example, if the NASDAQ and NYSE merge in this deal, they would control 50 percent of the share-trading market in the United States. Thus, there are legitimate antitrust concerns that are likely to be raised if the deal does go through.

Second, post-merger, the market for listings would essentially become a monopoly. In response to this, NASDAQ maintains that regulators should look at the merger from the perspective of the global market, rather than the effects that it might have in the US markets.

In any event, the regulatory matters concerning this deal may be sticking points for negotiations to proceed further; however, with the current Republican majority in the United States House of Representatives looking to increase competitiveness of the US in global markets, there is potential that the deal may go through regardless.

http://online.wsj.com/article/SB10001424052748704409004576145992472922806.html

http://www.economist.com/blogs/schumpeter/2011/04/exchange_mergers