Politics appear to be taking a back seat in the takeover battle for Euronext. And so they should. After all, the pan-European stock exchange is a commercial operation demutualised long ago with shareholders keen to secure the best value for their asset.
But don’t be fooled. The German, French and Italian governments, not to mention the European Central Bank, are all watching closely how the current contest between the New York Stock Exchange and Deutsche Börse for the Paris-based Euronext unfolds.
A few months ago, they all made strong noises in favour of seeing the German exchange merging with Euronext rather than falling under the wing of the NYSE. All this on the grounds of European national interests, as both President Jacques Chirac and the German Chancellor Angela Merkel made clear.
Since then, the German finance ministry has continued pressing its French counterpart to promote the Franco-German solution and block the American deal. But this is being done quietly behind the scenes because the financial market and the steady rise in Deutsche Börse’s share price during this summer’s equity bull run is currently doing the job for the politicians.
The hedge funds, which successfully scotched Deutsche Börse’s earlier attempt to acquire the London Stock Exchange under its former boss Werner Seifert, are now sending a clear message to Euronext’s Jean-François Théodore and the NYSE’s John Thain. Right now, the hedge funds are saying, the Deutsche Börse offer is better than the American one.
Of the two hedge funds holding big positions, TCI has always rooted for a Franco-German combination. But now Atticus, with large stakes in all three exchanges, is also suggesting that the NYSE is no longer offering the best deal. The ball, it adds, is in Mr Thain’s court.
Mr Thain and Mr Théodore appear determined to push through their transatlantic merger. But without a greatly improved American offer, the arithmetic risks conspiring against them. Between them, Atticus and TCI hold about 20 per cent of Euronext. Fidelity has another 5-6 per cent. Generali also has a substantial stake, and proved back in the days that Mr Seifert was trying to buy the LSE it is no pushover. The Italian insurer joined at that time the campaign launched by the hedge funds against the former Deutsche Börse boss’s London designs.
Then there are all the French institutions that have been piling back into Euronext shares, rallying to their government’s call to defend Paris.
That said, a knock-out bid from New York would put many French institutions in a spot.
The problem is that penny-pinching has simply given the Deutsche Börse and the politicians time to regroup. Worse, if the NYSE – as it probably will – comes back with a sweeter offer, the political lull in Europe will be broken and a campaign is likely to be launched to block the Americans.
For as long as European governments continue to consider stock exchanges as symbolic national assets, then the chances of allowing market forces to decide a bidding contest will remain pretty slim.
Air Liquide is adopting a stiff upper lip at the prospect of losing its crown as the world’s leading industrial gases company to Linde. But if the German company is enjoying the favours of the market after closing on Tuesday its transformational takeover of the UK’s BOC, its French rival quietly notes it will still be the sector’s number one in terms of profit.
In any case, it could well recoup the leadership should it pick up some of the assets Linde will have to shed on competition grounds.
But the real challenge for the French is how to sustain its steady level of earnings growth that have invariably increased by 10 per cent a year, making it a darling of small French savers. Indeed, small savers own as much as 40 per cent of the company.
The problem is, this steady performance has been the result of a combination of organic growth and acquisitions. Now that the industry is so concentrated – four groups account for 70 per cent of the market – the only way forward is likely to come from innovation and organic investment.