NYSE seeks to buy Euronext exchange

Deal would create $27 trillion market

May 23, 2006|By NEW YORK TIMES NEWS SERVICE

NEW YORK -- The board of the NYSE Group Inc., operator of the New York Stock Exchange, has offered to acquire Euronext, the pan-European exchange, in a deal that would create the first trans-Atlantic market.

The NYSE Group confirmed yesterday that it sent Euronext's supervisory board chairman and its chief executive a letter proposing a combination of the two companies.

"Our markets will cover more time zones than any other exchange group, in two of the world's main currencies, and will serve the largest investor base in equities, bonds and derivatives, including futures and options," said the letter, from John A. Thain, chief executive of NYSE Group, and Marshall N. Carter, chairman of its board.

The deal combines seven exchanges in six countries. The market capitalization of the companies traded on the new exchange will be $27 trillion.

Under the negotiated terms of the deal, the NYSE Group will pay $10.2 billion and will continue to have oversight of United States stock listings. Euronext would have responsibility for European operations, which are expected to be regulated in Europe.

NYSE said holders of Euronext stock could exchange each of their shares for 0.980 shares of the new NYSE Euronext stock and receive 21.32 euros in cash for each share they own. The new company would be listed in New York and Paris, with ownership split 50-50 between investors from each exchange.

Jan-Michiel Hessels, the chairman of Euronext's supervisory board, would be chairman of the new company, and Thain would be chief executive.

NYSE will use $3 billion in cash, borrowing to complete the deal. Thain said in a conference call yesterday that the company would pay down the debt within three years.

Thain also said the deal would recognize $275 million in cost savings, $250 million of which will come from technology. He forecast $100 million in revenue synergies.

"It really satisfies our vision of building the world's first truly global exchange marketplace," Thain said.

Finance has long been globalized, with money, deals and labor seeking opportunities around the world. A combination of the NYSE Group and Euronext would catapult stock exchanges from national or continental entities to trans-Atlantic behemoths with diversified businesses and tremendous pricing power.

If consummated, the deal would alter the architecture of global stock trading, combining two major cash-trading businesses and opening up new pools of investors to companies, which could be listed in two major market centers. It is also expected to speed the modernization of the Big Board and signal more aggressive growth for Euronext.

A deal would combine the NYSE's traditional stock exchange and subsidiary Archipelago Holdings' electronic stock and options businesses with Euronext's all-electronic trading platform. The latter encompasses the stock exchanges of Paris; Amsterdam; the Netherlands; Brussels, Belgium; and Lisbon, Portugal, plus the London derivatives exchange.

The scramble to find a partner comes amid a broader dance of global exchanges. In March, Nasdaq made an informal $4.1 billion bid for the London Stock Exchange. After the offer was rebuffed, Nasdaq built up a 25.1 percent stake in the London exchange, paving the way to either own it or protect against someone else owning it.

In the past few years, the London Stock Exchange has been courted with little success by Deutsche Bourse, Macquarie Bank and Euronext.

If Nasdaq and the London Stock Exchange ultimately paired up, it would create a powerful European listings business as well as an all-electronic stock market.

But the combined entity would have no exposure to options or derivatives trading - two high-margin, fast-growing businesses. Nasdaq's debt already has been downgraded to junk by the major credit-rating agencies as the result of its purchase of a quarter-stake in the London exchange.

In 2005, Euronext earned revenue of 961.9 million euros. Derivatives trading constituted 331.9 million euros of the total revenue, while cash trading provided 215.7 million euros. Sales of software were the third-largest category of revenue, with 195.2 million euros. It earned 241.1 million euros in 2005, or 2.18 euros a share.

In 2005, the New York Stock Exchange had 2,672 companies worth $21.2 trillion. On average, it traded 1.6 billion shares a day, with two days in which more than 3 billion shares were traded.

Euronext has 1,225 listed companies worth 2.6 trillion euros. In 2005, it traded 347 million derivatives contracts, up 11 percent from 2004.

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