Nasdaq and ICE’s interest in taking over NYSE Euronext is of course a potentially big complication for Deutsche Börse’s own plans to merge with NYSE. But anyone expecting the US partners’ proposed counter-bid to trigger an urgent reaction in Frankfurt got it wrong.
Sure, the German group knows it is in a fight and may have to raise its offer along the road. But Deutsche Börse shows no sign of rushing to show its hand.
At one level this is obviously appropriate: after all, the Nasdaq/ICE pitch is to NYSE Euronext investors, so it is up to that company to respond first, beyond Deutsche Börse’s bland statement that it believes its bid is still the best.
But Deutsche Börse also hopes time will do it a favour by allowing investors and rating agencies to turn their attention to the weaker financial standing of the Nasdaq/ICE bid and chip away at some of its mooted merits.
One of the private reactions from the Frankfurt side is that Nasdaq looks financially stretched. Nasdaq promises greater extra synergies – about $610m in cost savings – but says these will only be meaningfully accretive to earnings from 2013.
And of course, as people on the German side also point out, Nasdaq/ICE have done no due diligence on NYSE – which is well under way in talks with Deutsche Börse. “Our bid is not just two guys on a video screen,” is how one person in Frankfurt puts it.
The Nasdaq and ICE proposal admittedly creates a large US exchange operator. But Deutsche Börse is trying to make sure one question hangs in the air: does it give the NYSE the international presence that a combination with Deutsche Börse would?
Nor does Deutsche Börse expect the Nasdaq and ICE proposal – which has wrapped itself in the Stars and Stripes to emphasise the advantages for the US – to get such a free ride in its home turf.
After all, people in Frankfurt reason, synergies from the Nasdaq and ICE plans would mean significant job losses in New York, while corporate America – and anti-trust authorities – might prefer the US to maintain more than one significant stock listing venue. And the Nasdaq/ICE deal would amount to a break-up of NYSE: hardly the treatment that many influential US voices might prefer for the “iconic” institution.
Some of this logic has valid counter-arguments, of course – including the view, aired here a couple of days ago, that US equities trading is still nowhere near a level to worry anti-trust authorities. And Deutsche Börse’s plans for NYSE Euronext face their own considerable anti-trust hurdles at the level of derivatives markets in Europe.
But so far the message in Frankfurt is that there is no need to deviate from merger plans, which have been presented as a delicately weighted balance between Deutsche Börse and NYSE that give shareholders of the German group 60 per cent of the new company.
Significantly altering that balance, perhaps by adding a cash component to Deutsche Börse’s offer, may not be easy and is not being considered at this stage, a person close to the company says.
But one thing the German group could consider doing in conjunction with NYSE Euronext is revising its estimates of the cost synergies to be obtained from the deal. Some analysts have said they think the original €300m estimate is conservative – potentially giving the Germans some wiggle room if they want to find a little more for investors.
Deutsche Börse is due a break-up fee of €250m/$340m if the NYSE deal does not go ahead – which people familiar with the German group hope will also persuade NYSE investors that the 19 per cent premium offered by Nasdaq and ICE is less attractive than billed.
All in all, the prevailing view from Frankfurt is that the Nasdaq/ICE attention is not a crisis but a complication – and there are still plenty of them to come.
Reto Francioni, Deutsche Börse’s chief executive, has said in other contexts that creating volume in some of his group’s businesses is “a marathon, not a sprint”. So it will also be with his attempted transatlantic merger.
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