Deutsche Boerse unveils NYSE mega-exchange deal

FRANKFURT/NEW YORK (Reuters) - Deutsche Boerse will take over NYSE Euronext to create the world's largest exchange operator in a deal worth $10.2 billion, but the exchanges dodged key questions that could threaten the accord.

While shareholders of the German exchange will control 60 pct of the new company and 10 of 17 board seats, there are suspicions in Germany that NYSE management will be in the driver's seat. There are also concerns in the United States that the New York Stock Exchange will lose influence and independence.

That tension could raise obstacles to regulatory approval of the deal, which values the two-century-old icon of American capitalism at about $39 a share.

No name has yet been given to the combined group. NYSE Euronext Chief Executive Duncan Niederauer, who will have the same title at the combined group, said talks were continuing to find a name that would address political concerns on both sides of the Atlantic.

Niederauer acknowledged at a news conference that the name of the new company would be an "emotional decision" for everyone involved. He said he hoped to give the board some name possibilities in a month or two.

Reto Francioni, CEO of Deutsche Boerse, will become chairman of the combined companies. He argued at a news conference that the deal, which he said "reshapes our entire industry," would strengthen the roles of both New York, as the financial capital of the world, and Frankfurt, as a European financial capital.

Still, U.S. Senator Charles Schumer, who first raised the name issue over the weekend, has been insisting that NYSE should come first in the name of the group, which will have headquarters in both New York and Frankfurt.

Schumer reiterated those concerns after the deal was announced on Tuesday, calling the NYSE a "preeminent brand" and saying there was no reason for it not to come first in the name chosen for the combined companies.

The combined entity will have more than $20 trillion in annual trading volume, and operations in the United States, Germany, France, Britain, Amsterdam, Portugal and Belgium.

Under the terms of the deal, each NYSE Euronext share will be exchanged for 0.47 share in the new company; Deutsche Boerse shares will be swapped on a one-for-one basis, the companies said in a statement.

A source familiar with the deal said 55 percent of the shareholders in the new company will be from the United States, with 11 percent from Germany, 11 percent from the UK and 23 percent from the rest of the world.

The exchanges face intense competition in their traditional stock-trading business from younger trading venues geared toward today's increasingly dominant high-speed electronic traders.

NYSE -- created by brokers and merchants who met under a buttonwood tree in lower Manhattan -- is one of several exchanges that have responded by investing in technology and moving into more profitable derivatives trading.

But the Big Board's once dominant market share in U.S. equities trading has steadily dwindled in recent years, and NYSE Euronext shares are down 61 percent since early 2007, compared with an 8.3 percent drop in rival Nasdaq OMX.

"This merger -- if approved -- creates a true thousand-pound gorilla," said Herbie Skeet, analyst at exchange consultancy Mondo Visione. "The new entity will be a global powerhouse, which will dominate derivatives trading in Europe and be a major force in U.S. and European cash equities trading."

Together, Deutsche Boerse's Eurex unit and NYSE Euronext's London-based Liffe unit would dominate European exchange-based futures trading, with a more than 90 percent share overall, raising antitrust questions among market regulators.

Niederauer, who said the deal was "no act of desperation," forecast "a long road" to regulatory approval, adding that he assumed the deal will be subject to a government foreign investment review.

There also remains a chance that some other U.S. exchange could get involved in a counterbid for NYSE. Officials from exchange companies CME Group Inc and NASDAQ OMX Group will meet to discuss "strategy to respond" to the buyout deal, Fox Business Network reported on Tuesday.

Niederauer said he was aware of the rumor of a possible CME bid for NYSE but had heard nothing official, adding that the Big Board had signed a deal with a partner that it trusts.

NYSE shares were down 3.1 percent in early-afternoon trading, trimming earlier losses, while Deutsche Boerse shares closed 2.4 percent lower.

CONSOLIDATION WAVE

After a few years' hiatus that included the financial crisis and the beginning of a global regulatory revamp, the world's exchange operators are back in the takeover game.

Singapore Exchange bid for Australia's ASX late last year. And last week, London Stock Exchange said it would buy Toronto Stock Exchange operator TMX Group. The LSE-TMX news came just hours before Deutsche Boerse and NYSE Euronext said they were in advanced talks.

Local concerns over the wave of consolidation sweeping the industry surfaced in Asia on Tuesday as Singapore Exchange tweaked its $7.9 billion bid for ASX to allow more Australian directors onto a combined board --- an attempt to win over skeptical Australian politicians.

Nationalism has long been one of the biggest hurdles to exchange mergers. The marketplaces are often symbols of national pride and important to attracting business and capital.

Regulators are paying close attention to the deals, and exchange users have expressed fear that the takeovers will limit competition.

"Euronext and Deutsche Boerse are still screwing us on fees for clearing, the closing auctions and small and mid-cap trading -- the areas where they still have virtual monopolies," said the head of markets at a large European bank, who declined to be named. "A merger is concerning because together they will be more powerful and better placed to protect these monopolies."

The LSE-TMX deal has already run into foreign ownership concerns in Canada.

But despite rumblings about Middle Eastern ownership in Ontario, LSE shareholder Boerse Dubai, which is owned by the ruler of the Gulf Arab emirate, has not been asked to trim its 20 percent stake, a source familiar with the matter said.

Singapore Exchange's willingness to give ground and award an equal number of board seats to Australians and Singaporeans in the combined entity shows how local sensibilities are being overcome as the pressure to consolidate rises. The value of SGX's offer has not been changed under the new proposal.

Deutsche Bank and JPMorgan Chase & Co advised Deutsche Boerse on the deal; NYSE Euronext's main financial advisers were Perella Weinberg Partners and BNP Paribas.

(Additional reporting by Philipp Halstrick, Ed Taylor, Paritosh Bansal, Adrian Bathgate, Saeed Azhar, Luke Jeffs and Narayanan Somasundaram; Writing by Alexander Smith and Christian Plumb; Editing by Jane Merriman, Chris Wickham, Martin Howell and John Wallace)

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