When the New York Stock Exchange announced a $10-billion deal to acquire Euronext five months ago, there was little hint of the turbulence that lay ahead.
Based in Amsterdam, Euronext operates stock markets in Paris, Brussels, Amsterdam and Lisbon, as well as a futures exchange in London. By buying Euronext, the NYSE would attain a major beachhead in its bid for global expansion.
Since the June 1 announcement, however, the deal has been hampered by persistent opposition from European regulators and business interests that view the NYSE as an interloper on their turf. Deutsche Boerse, which runs the Frankfurt Stock Exchange, has continued to press its rival bid to buy Euronext.
Though the acquisition is still considered likely, many experts believe NYSE Group Inc. may have to sweeten its offer.
“Completion of the merger on deal terms similar to those announced, while likely, is by no means a foregone conclusion,” Merrill Lynch analyst Patrick Pinschmidt wrote in a report to clients.
This much is clear: The NYSE has staked a lot on acquiring Euronext and says it will do whatever it takes to prevail.
“We are focused and believe that we will win,” NYSE Chief Financial Officer Nelson Chai said in an interview.
The NYSE is particularly drawn to the LIFFE futures exchange in London, which trades derivatives, or financial instruments tied to the value of an underlying asset. Acquiring LIFFE would speed its push into profitable derivatives trading, a process the Big Board began last year by acquiring the Archipelago electronic trading system.
Euronext also would boost the NYSE’s small bond-trading operation, shore up its international stock-listing business and save costs through the consolidation of trading systems.
Euronext and NYSE shareholders are expected to vote on the deal in December.
Most individual investors in the U.S. wouldn’t be directly affected by the NYSE-Euronext deal because they don’t designate where their stock trades are handled.
Nonetheless, experts believe that putting the Big Board and European exchanges under a single owner will improve the ease and efficiency of trading stocks internationally.
Mutual fund companies that execute huge stock trades may see a more direct benefit. Blending the exchanges would result in a greater volume of stock orders, which could give the funds a better chance of completing trades at desired prices.
However, the deal has faced continuing opposition in Europe.
Although the two companies have touted their combination as a merger of equals, a report this month from French lobbying group Paris Europlace said the plan favored the NYSE over Euronext. The current terms of the deal call for the new company to be based in New York and for the NYSE to contribute 11 of the board’s 20 members.
Leading European figures, including French President Jacques Chirac, have said that European markets should join forces before transatlantic deals are contemplated.
“The whole disdain of all things American is playing a larger [role] in this merger than anyone may have expected,” said Seth Merrin, chief executive of Liquidnet Inc., an electronic-trading company in New York. “George Bush has greatly diminished their odds of getting Euronext.”
John Thain, NYSE chief executive, has shuttled frequently to Europe in recent months to seek support for the deal. And on Friday, Euronext announced that it had hired Los Angeles-based investment bank Houlihan Lokey Howard & Zukin to act as an independent expert to review the deal.
Some analysts say the NYSE may have to boost European representation on the board and lift its bid to win over Euronext shareholders.
As its stock price has climbed, the value of the NYSE’s bid has risen to about $11.3 billion. But Deutsche Bourse shares also have climbed, making its offer worth $11.1 billion.
Some experts think the NYSE may have to up its offer to make sure it stands out.
Merrill’s Pinschmidt predicts the NYSE may ante up a $600-million “year-end cash ‘sweetener.’ ”
Chai of the NYSE said there were no negotiations underway to rework the deal.
“Neither the financial consideration nor the board configuration have changed” since the deal was announced, Chai said.
Nevertheless, Jamie Selway, managing director of New York brokerage firm White Cap Trading, also expects that the NYSE will sweeten the pot.
“They’ll do whatever needs to be done to make sure they’re the most attractive offer,” Selway said.