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FRANKFURT: The proposed merger of Deutsche Boerse and NYSE Euronext -- which now looks almost certain to fail -- is not vital for the German company's survival, say analysts and industry experts.
According to NYSE Euronext chief executive Duncan Niederauer, there is only a "glimmer of hope" that the tie-up, which would create the world's largest market operator, will be approved by European competition authorities.
EU competition authorities opened a probe into the deal in August over concerns that the merged company would control 90 percent of the European derivatives market.
A final decision is expected on February 1.
In November, the companies proposed to separate some of their derivatives operations to allay EU concerns, but sources said Brussels remained unsatisfied.
The proposed merger has also sparked controversy in the United States as it would hand over the New York Stock Exchange to foreign owners.
A deal would see Deutsche Boerse shareholders own 60 percent of the new combined, Netherlands-incorporated firm.
Investors, too, seem unfazed by the likely failure of the deal, with Deutsche Boerse shares rising in recent days.
At a dinner with journalists last week, the head of the company that operates the Frankfurt stock exchange, Reto Francioni, preferred to talk instead about "organic growth" and insisted his company was optimistic about 2012, merger or no merger.
"It was the shareholders of NYSE Euronext who would have stood to gain more from the tie-up," said LBBW analyst Martin Peter.
"Deutsche Boerse is better positioned than the Americans."
The Frankfurt-based group is indeed 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.
In the case of NYSE Euronext, the highly competitive, low-margin stock-trading unit accounts for around half of overall business, while at Deutsche Boerse "it only plays a minor role," the LBBW analyst said.
In the first nine months of 2011 and the whole of 2010, Xetra accounted for just 12 percent of the group's overall revenues.
That means it has relatively small exposure to competition from alternative exchanges such as BATS and Chi-X, which teamed up to combine their stock trading platforms in Europe last year.
However, the German group would find itself "in danger" if alternative exchanges moved into the financial derivatives sector, warned Equinet analyst, Philipp Haessler.
Thanks to Clearstream and Eurex Clearing, however, Deutsche Boerse is well placed to benefit from the expanding post-market settlement and clearing sector, which plays a central role in both the regulated and over-the-counter markets.
The London Stock Exchange is hoping to challenge Deutsche Boerse in this area by taking over the other large European clearing house, LCH.Clearnet.
If, contrary to all expectations, the tie-up does go ahead, NYSE Euronext and Deutsche Boerse would become the world's leading stock market and would benefit from vast cost synergies and become more profitable, said Philipp Haessler at Equinet.
However, the long-anticipated global consolidation in the sector is proving ephemeral: last year, an alliance between the London and Toronto stock exchanges ran aground and Australia also vetoed a merger between the Sydney and Singapore stock exchanges.
"National interests and regulation are proving bigger obstacles than expected," Haessler said.
Christian Muschick, analyst at Silvia Quandt, said the EU Commission's reservations about a tie-up between Deutsche Boerse and NYSE Euronext are probably of a more political nature.
Europe "feared ceding control and being dominated by the Americans," he said.
- AFP
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