Idle summers are meant to be a European speciality but the New York Stock Exchange has been caught napping. Its shares have drifted down 7 per cent since June 1, when its formal bid for Euronext was announced, leaving its offer worth €66 per Euronext share. Deutsche Börse’s stock, meanwhile, has enjoyed a 9 per cent rise. Its rival bid is now worth about €71 a share. Ominously for the NYSE, Euronext is trading between the two alternatives.
Philosophically, Euronext’s management prefers the US deal with its apparent promise of autonomy within a transatlantic partnership. Euronext’s crew of largely activist shareholders, however, were won round, by a slim majority, mainly because at the time NYSE’s offer was higher. Under the NYSE agreement Euronext abdicated the right to talk to other bidders. But the idea that, after effectively presiding over an auction, management recommends the lowest offer is untenable. Hedge fund TCI alone has a big enough position to force another vote of confidence.
French businessman Henri Lachmann should soon publish his report on the deal’s impact on Paris. It is possible that, with Gallic panache, he will argueboth offers are inadequate. Still, Deutsche Börse should press home its advantage. By uniting Liffe and Eurex into a derivatives monolith, its proposal has significant regulatory risk. Deutsche Börse should state, in public, that it will indemnify Euronext shareholders against any forced divestment. It should also reopen the debate about its €2.3bn net cash pile. Historically Deutsche Börse has argued that unspecified regulatory capital requirements for its custody and counterparty activities prevent it from running a more efficient position. Ring-fencing these units could change this.
How can the NYSE respond? The mechanics of Deutsche Börse’s offer mean its value is temporarily flattered, to the tune of about 3 per cent, by Euronext’s recent special dividend. But to win Euronext from under the noses of Europe’s integrationists NYSE needs to be ahead by yards, not behind by inches.