Deutsche Börse’s unrequited Christmas romance

It seems that Deutsche Börse tried and failed to seduce NYSE Euronext into considering a marriage of convenience that would have created by far the world’s biggest stock exchange group.

The intriguing thing is that it even considered that such a combination could ever work. First, there would have been obvious and virtually insurmountable antitrust hurdles given that such a marriage would have concentrated European derivatives trading in equities and options into the hands of one group.

Second, there would have been huge political obstacles to such a merger. Not just because the Börse’s higher market capitalisation would have implied German dominance, but also because Euronext would have had quite a problem persuading the French authorities to allow Paris to be sidelined as a financial centre. And this at a time when Paris is lobbying hard to strengthen its position as a leading continental European financial centre by taking advantage of the City of London’s current discomfitures.

In any case, it is difficult to see Wall Street and the Washington political establishment agreeing to the NYSE becoming the junior partner to Frankfurt. The German exchange could clearly dress up any agreement to keep up the appearance of a marriage of equals by giving the NYSE Euronext the lead in cash equities while taking charge of the derivatives business. It made similar proposals both to the London Stock Exchange and subsequently to Euronext, but failed to lure them to the altar. The LSE instead combined with the Milan exchange, and the pan-European Euronext jumped into bed with the NYSE.

Since losing Euronext to the NYSE, the Börse has continued to make a virtue of its integrated stock exchange model while making a few smaller-scale targeted acquisitions. But with the financial markets in crisis and trading volumes in both equities and derivatives falling sharply, cross-border consolidation is as good a way as any to cut costs by concentrating more volume on a single platform.

The Börse also continues to be under pressure from its two core activist investors – TCI and Atticus – to deliver greater value to shareholders. These hedge funds forced out Werner Seifert, its former chief executive, after the LSE fiasco. They are now breathing down the neck of his successor, Reto Francioni. And they have succeeded in persuading the Börse to change its supervisory board chairman; albeit the new man is still a distinguished member of Deutschland AG.

So why were the aborted talks with NYSE Euronext leaked to a German magazine at the weekend? The answer may be that the Börse simply wants to show that it is not standing still and is responding to the demands of its hedge fund investors to consider every possible option to boost the company’s value. And as with all good merger and acquisition rumours, their net effect is to get the shares of the companies involved revalued by the market. Even after the announcement that talks had ended, the Börse’s shares have been recovering this week.

Meagre medicine

Those who have been holding their breath in anticipation of the European Commission’s proposed package of pharmaceuticals legislation should finally be able to come up for air today. But if they are hoping to gasp in some reinvigorating oxygen, they may be disappointed.

After copious hot air, lengthy delays and much rewriting, the word in Brussels is there is little that remains. In particular, efforts to ban the repackaging of medicines – a way to indirectly attack cross-border arbitrage in pricing under the name of fighting counterfeiting – have been dropped.

The straw man of broader liberalisation to permit direct communication between pharmaceuticals companies and patients has also – rightly – been clipped. But the precise details of the final wording of this text will still merit attention.

It seems bizarre in the internet age that any crazy unscientific and unsubstantiated rumours about illness and treatment can be easily accessed at the touch of a button by patients, while the very companies which developed new medicines cannot communicate – or respond – at all.

There could be a case for allowing pharmaceuticals companies some greater scope for direct communication, at least within strictly regulated limits and in response to inquiries from patients.

But such efforts would be best done through pharma companies pooling resources and handing the drafting and dissemination of any information to a third party – ideally a better-funded European medicines agency. Otherwise, the temptations to promote their own medicine at the expense of the science may prove too great.

european.view@ft.com

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