By Michael Smith and Jonathan Spicer
SYDNEY/NEW YORK (Reuters) - Deutsche Boerse and NYSE Euronext are expected to sidestep thorny political issues in announcing a deal later on Tuesday to create the world's largest exchange operator, as the wave of global stock exchange consolidation gathers pace.
In Asia, Australian bourse operator ASX and suitor Singapore Exchange revised the board structure of their planned $7.9 billion tie-up in an attempt to win the support of Australian lawmakers wary of ceding control of the local bourse.
Nationalism is one of the biggest hurdles to the consolidation sweeping the industry as exchanges are often seen as symbols of national pride. The deals, including a bid by the London Stock Exchange to take over Toronto Stock Exchange operator TMX Group, face intense scrutiny from regulators and politicians around the world.
A number of key details in the Deutsche Boerse and NYSE Euronext merger have been hammered out, sources said. A definitive agreement is expected to be announced on Tuesday, one source said.
But a number of difficult issues have yet to be addressed, which is likely to add to concerns being raised on both sides of the Atlantic.
Political concerns are also seen as the driver behind the SGX giving more board representation to ASX in the combined entity. The bourses said in a joint statement on Tuesday that the two will have equal number of directors in the merged group, compared with less than half for ASX in the earlier proposal.
"All the resistance to the deal has been political. The steps taken today should address some of those political issues," said Mark Nathan, portfolio manager at Arnhem Investments. "It clearly carves out and maintains some sovereignty within Australia, and there should be a lot less resistance to the deal in its new form."
There is no change to the value of the SGX offer and ASX shareholders will still hold about 36 percent of the company under the new proposal.
WHO NEXT?
Some issues facing the Deutsche Boerse-NYSE Euronext tie-up, which could still derail the plan, would need to be resolved over the coming weeks, said the sources, who requested anonymity because talks continue.
"The biggest question mark in general is obviously the European political and regulatory landscape coming out of this," one source said.
The Frankfurt- and New York-based companies were center stage in the merger frenzy that erupted last week and heated up on Monday as Brazil's BM&FBovespa said it was eyeing its own prospects and as traders buzzed that CME Group could jump into the fray.
Fox Business Network reported that CME Group, currently the world's top derivatives exchange group, may make a hostile bid for NYSE Euronext, citing bankers.
A spokesman for Chicago-based CME declined to comment. CME officials have been guiding investors away from expectations that the company would do a merger deal.
BM&FBovespa, the world's fourth-largest financial exchange operator, is closely looking out for tie-up opportunities, Chief Executive Edemir Pinto told Reuters. Pinto said China and India were markets where the bourse could pursue expansion.
The wave of consolidation activity sparked a rally in ASX shares last week, although the stock last traded at 14 percent below the value of the SGX bid, which indicated investors still had doubts about overcoming political obstacles.
Under the revised structure, the merged entity would have five directors each from SGX and ASX, with 3 international appointees. It has also pledged to maintain key staff, infrastructure and bourse functions in Australia.
The deal still faces major political hurdles in Australia, with approval needed from parliament, where the ruling Labor party is in a minority so an agreement will need to win support on both sides of the aisle.
"It's going to be very hard politically to get this one away...in a parliament with a majority of one," said Tom Elliott, managing director at MM&E Capital.
SGX shares fell 1.6 percent after it resumed from a trading halt on Tuesday. ASX shares remained on a halt.
'SENSITIVE AND COMPLICATED'
Deutsche Boerse and NYSE have worked out details such as senior executives but the name and location of operations have proven "sensitive and complicated," highlighting the difficulty in bringing together companies that are operationally quite different and symbols of national pride.
The companies had previously announced that NYSE Euronext head Duncan Niederauer would head the combined company, Deutsche Boerse Chief Executive Reto Francioni would be chairman, and that the German company's shareholders would get about a 60 percent stake.
At a 60-40 ownership split, the majority of shareholders in a combined company would be from the United States, with 55 percent from the United States, 11 percent from Germany, 11 percent from the UK and 23 percent from the rest of the world, a source said.
The board of the combined company would reflect the ownership structure, with 10 of the 17 members coming from the German side, a source said, adding that the numbers include both Niederauer and Francioni.
(Additional reporting by Philipp Halstrick, Paritosh Bansal, Adrian Bathgate and Narayanan Somasundaram; Editing by Balazs Koranyi and Muralikumar Anantharaman)
