Deutsche Börse has put a package of merger proposals to its smaller rival Euronext, aiming to ease shareholder concerns that a merged entity could be dominated by the Frankfurt group.
Under the plans, the Paris-based group would appoint half the supervisory board members of the new company. They would also avert a political showdown with Brussels by spinning off the Deutsche Börse’s clearing business for cash equities.
Such a spin-off, long demanded by the largest customers of Europe’s stock exchanges, would pave the way for a single, pan-European operation.
The package of proposals is understood to have been discussed at a meeting in Paris earlier this week. It will also be raised at the board meetings of the two groups and at Euronext’s annual meeting on May 23.
The package is also understood to deal with one of the thorniest issues: price. It suggests the two groups’ shares should be swapped for those in the new entity at a price reflecting the average daily price of each company over a three or six month period. A cash alternative could also be made available.
Euronext – which combines the Paris, Amsterdam, Brussels and Lisbon exchanges – declined to comment on the proposals, saying it was exploring several consolidation proposals. “We are in talks with Deutsche Börse but we are continuing to explore all our options for the benefit of our shareholders,” a spokesman said.
A significant block of Euronext shareholders – believed to control 30 to 35 per cent of votes – are held by those who also hold Deutsche Börse shares. They are pressing for a merger between the two companies.
The overlap in both companies’ businesses, with similar products traded in different countries, offers opportunities for cost and revenue synergies that cannot be achieved through a merger with any other exchange, the shareholders argue. The proposal that Deutsche Börse in effect gives away its cash equities clearing business is among the most significant it has made so far.
A group of French banks which oppose the merger say they fear that a “vertical silo” of trading platform and trading services, like that now run by Deutsche Börse, could raise trading costs in their own market.
Charlie McCreevy, EU internal markets commissioner, has said that if Deutsche Börse does not voluntarily break up its own internal silos, he will consider a directive on post-trade services such as clearing and settlement.
Several thorny issues have blocked progress on a deal for months. It has also been hindered by heavy-handed negotiating tactics on the part of the Börse, according to several people familiar with the talks.
The new package still leaves some sensitive questions unanswered, but goes much further than any to date and addresses some of the concerns raised by Euronext officials over ceding control to their German counterparts. The proposals call for a re-branding of the post-merger entity, with a new corporate name that avoids nationalistic sympathies.
The merger would create a new, combined derivatives business consisting of Euronext’s Liffe and Deutsche Börse’s Eurex trading and clearing businesses to be based in Frankfurt. It would also create a combined cash equities market to be based in Paris. Shares would be dual-listed in Paris and Frankfurt.
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