“As previously stated, Deutsche Börse’s Supervisory and Executive Boards believe that such a combination is the most attractive consolidation option for customers, shareholders, employees and for the financial centres involved,” said Deutsche Börse Supervisory Board Chairman Kurt Viermetz.
Deutsche Börse CEO Reto Francioni said: “Our proposal envisages four key terms: Firstly a new parent company with a new brand, secondly a business model leveraging the strengths of both parties whilst respecting national markets and regulatory requirements, thirdly a truly federal corporate structure and a European business location concept and fourthly a balanced corporate governance.” We continue to believe in the benefits of a combination of the two groups on the principle of a merger of partners, Francioni concluded.
Deutsche Börse sees the following advantages of a combination of Euronext and Deutsche Börse:
- A combination of the two companies would create a truly pan-European exchange organization which combines complementary product competencies and superior technology capabilities with a view to establishing the global benchmark in the exchange industry;
- The integration and harmonization of the trading infrastructure of Deutsche Börse and Euronext would result in significant efficiency gains for customers;
- The combination holds the potential for additional growth, significant cost synergies as well as an optimised capital structure. We expect synergies clearly in excess of synergies announced for any other stock exchange combination discussed to date. These synergies allow us to create value for both, customers and shareholders;
- A combination of Euronext and Deutsche Börse would be a significant step forward in the integration of European financial markets and would form the logical partner for other European exchanges to gravitate towards. It would create a European powerhouse with the ability to compete on a global scale.
Deutsche Börse proposes to base a combination of the two groups on the principle of a merger of partners. In light of this principle, Deutsche Börse envisages the following key terms for a potential combination with Euronext:
- A new group with a new brand establishing the nexus of excellence in
the industry
A new parent company, domiciled in the Netherlands, should act as a holding company for both groups. Neither Euronext N.V. nor Deutsche Börse AG shall be the absorbing entity to combine the two groups.
A new corporate brand and branding strategy would be developed for the merged entity that will underline its pan-European character as well as its status as a leading global exchange organisation.
- A business model leveraging the strengths of both parties whilst
respecting national markets and regulatory requirements
The combined business model shall be predicated around continuing the success of both Euronext and Deutsche Börse to date whilst generating further growth as well as operational and financial synergies. Deutsche Börse expects the business model will offer significant room to increase capital efficiency and therefore distribute free cash to shareholders during or shortly after the merger.
The objective would be to include all Deutsche Börse and Euronext businesses into the new group, including Deutsche Börse’s post trading activities. However, the business model shall respect local regulations and particularities of the respective market places.
In particular, the combined business model shall fully account for different national approaches and European regulatory discussions in the area of post trade. The integrated, vertical model operated by Deutsche Börse has served well and is strongly supported by market participants in Germany, but there is no intent to change market infrastructures in markets that currently operate under a horizontal model like France. Deutsche Börse is prepared to contribute its cash equity clearing to a truly European cash equity clearing organisation operated as an independent, privately run service provider ; this move underscores Deutsche Börse’s commitment to a merger with Euronext.
Furthermore, in order to address regulatory requirements and ensure close proximity to customers, there shall be a separate subsidiary legal entity in each of the different countries where the new group operates exchanges (i.e. Belgium, France, Germany, the Netherlands, Portugal and UK). Deutsche Börse expects that existing approaches on multi-national regulatory coordination as developed by Euronext could serve as blueprints for the future of the new group.
Industry shaping IT expertise will be a core competence for the combined group. Nevertheless, Deutsche Börse shares Euronext’s vision of managing the IT organisation in close co-operation with an external partner.
Decisions on the future setup of trading platforms in cash and derivatives shall be taken after the merger under the premise to balance user benefits from the integration, transfer costs for users as well as operational synergies for the combined group.
- A truly federal corporate structure and a European business location
concept
In order to emphasize the European character of such a merged entity the legal domicile of the new group shall be Amsterdam. The new group would have principal listings for its shares in Paris and Frankfurt. National stock exchanges shall be operated out of local legal entities.
For the overall location strategy a pan-European structure across financial centers is proposed.
- Headquarters will be located in Frankfurt, which would include the majority of executive management’s offices and of key staff in corporate center functions.
- Cash equity trading and listings activities will be led from Paris and will continue to be operated by the local stock exchange organisations which would be fully in line with the current model of Euronext. Paris would also become Center of Management for Pan-European Cash Trading Initiatives like a pan-European equity market for growth companies to be developed.
- Derivatives trading will be operated and located in Frankfurt and London (Liffe)
- Information Services will be managed from Amsterdam
- Clearstream will continue to be managed from Luxembourg
- IT operations will be managed from Frankfurt
Key elements of the federal structure are to be anchored in the statutes of the new group, such as Frankfurt as management headquarters, and Paris as center of management for European Cash Equities.
For operational business activities in all of the above mentioned functions and divisions customer proximity will be critical. Therefore, we envisage the combined group to be a significant employer in the context of the local financial services industry across all key European financial centers.
- A balanced corporate governance in the spirit of partnership
In line with the board structures of Euronext and Deutsche Börse, the new combined group shall have a two tier board structure. Deutsche Börse is committed to create a balanced corporate governance in the spirit of true partnership:
An equal composition of the Executive Board in terms of numbers is proposed between Euronext and Deutsche Börse Management. Initially, the Management Board of the combined group shall be led by Jean-Francois Theodore and Reto Francioni becoming Co-CEOs. After a transition period Reto Francioni will become sole CEO and Jean-Francois Theodore would join the supervisory board in a leading role in order to further contribute his experience.
The Supervisory Board of the merged entity shall reflect outstanding international business expertise with a balance of 8:8 members from each company with a casting vote for the Chairman. The Chairman shall be nominated by Deutsche Börse, and a Vice Chairman shall be nominated by Euronext. The chairs of the Board Committees shall also be divided up amongst Board members of both sides. The Vice Chairman shall lead an International Advisory Board on group level. Customers and other competent personalities from throughout Europe will be asked to provide advice and represent their interests through this International Advisory Board. In addition, Local Advisory Boards shall assist the Management of local exchanges, as is already in place in some locations.
Deutsche Börse is committed to build together with Euronext a leading global exchange organization on the basis of a shared vision and a true partnership. Deutsche Börse is looking forward to continue the discussions with Euronext in a trustful and constructive way to bring them to a mutually beneficial and successful conclusion.
