EU blocks Deutsche Boerse, NYSE tie-up

(BRUSSELS) - The European Commission said Wednesday it had "no alternative" but to veto a transatlantic tie-up of the Frankfurt and New York stock exchanges, a decision slammed in Germany as a "dark day" for Europe.

The European Union's senior competition regulator Joaquin Almunia confirmed in Brussels the long-anticipated decision to block the planned merger on the grounds the combined company would control 90 percent of a key sector.

The trade in certain derivatives products on such exchanges and whose values are dependent on underlying European economic fundamentals, Almunia said, would become skewed because the joint company would dominate the global market there.

"We could only have allowed a merger if the parties had offered sufficient remedies," Almunia said in reference to conditions involving disposals by both set down by the Commission last year for the EU to give its green light.

"Unfortunately they only offered remedies limited in their scope," he said.

As a result, "in the end, we had no alternative other than to prohibit the merger."

Well-steeled in advance for losing the chance to become the world's biggest market operator, Deutsche Boerse said the decision showed the EU was "out of touch with reality."

"This is a dark day for Europe and its future competitiveness on global financial markets," it raged.

"The EU Commission's decision is totally out of touch with reality and is based on a narrow definition of the markets which does not take into account the global nature of the competition on the derivatives markets," Deutsche Boerse fumed.

Deutsche Boerse chief Reto Francioni described the decision as "wrong," saying it was "inconsistent with and even contradictory to the Commission's stated aim of expanding regulation on the over-the-counter derivatives market."

Blocking the merger would prevent the creation of a Europe-based globally competitive stock exchange that "would have contributed to standardised, transparent and stable markets in Europe," Francioni said.

The proposed merger had similarly sparked controversy in the United States as it would have handed over the New York Stock Exchange to foreign owners, with Deutsche Boerse shareholders owning 60 percent of the new combined firm.

NYSE Euronext, which also controls markets in Paris and Amsterdam, said the decision was "based on a fundamentally different understanding of the derivatives market."

"As we made clear throughout this process, we would not agree to any concessions that would compromise or undermine the industrial and economic logic of the proposed combination," said NYSE Euronext chairman Jan-Michiel Hessels.

NYSE Euronext deputy chief executive Dominique Cerutti told AFP they had not yet decided on whether to launch an appeal.

"If we do, it will mainly be to demonstrate the strength of our arguments, in particular on how to define relevant markets affected," he said.

Investors appeared a little disappointed, with Deutsche Boerse shares underperforming the overall market.

In Berlin, Chancellor Angela Merkel's spokesman, Steffen Seibert, said the government "respected" the decision and would focus primarily on "the interests of the financial capital of Frankfurt."

Analysts argue Deutsche Boerse is better positioned than its US counterpart, anyway, because it is active across the whole range of activities, from its Xetra electronic stock-trading platform, to its Eurex derivatives market and its Luxembourg-based clearing subsidiary, Clearstream.

Deutsche Boerse generates just 12 percent of its revenues from the highly competitive, low-margin stock-trading activities, while in the case of NYSE Euronext it accounts for around half of overall business.

There has long been talk of global consolidation in the stock markets sector, but so far national interests and competitive concerns have torpedoed planned alliances, for example between those in London and Toronto, and Sydney and Singapore.

Commission prohibits proposed merger 
between Deutsche Börse AG and NYSE 
Euronext - guide