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The modified proposal underscores Deutsche Börse’s concept of a federal model with a division of power between the financial centers involved. Against the background of this modified proposal and its financial attractiveness in the light of the recent share price developments Deutsche Börse expects the Euronext Board to reassess the situation. Deutsche Börse continues to believe a combination with Euronext will create superior value for shareholders and all other stakeholders. In addition, it will create a clear leader in the industry and will significantly contribute to the further integration of European financial markets.
The key terms of the modified proposal are the following:
- Euronext and Deutsche Börse would be combined under a newly created Dutch company (NewCo), operating under a new brand
- The Dutch NewCo would make a simultaneous tender offer for all shares
of Deutsche Boerse and Euronext against a consideration of NewCo shares and
cash:
- The percentage of NewCo shares that Deutsche Börse and Euronext shareholders would receive is intended to be based on the market capitalization ratio calculated on the basis of the volume weighted three months average share prices of the two companies in the period ending on the day preceding the announcement of the offer by NewCo.
- NewCo would pay out approximately €2 billion in cash to shareholders tendering their shares to NewCo (based on the assumption that all shareholders of the two companies tender into the offers).
- The regulatory framework for the new group would be based on the federal college of regulators concept successfully developed by Euronext.
- The Supervisory Board and the Management Board would be composed with an equal number of representatives from Euronext and Deutsche Börse. As a result, the corporate governance would ensure effectiveness but also fairness and balanced geographic representation. In case of a combination of the two companies, Deutsche Börse would fill the position of CEO and Euronext would fill the position of Chairman of the Supervisory Board.
- The combined group would be a federal organization, operating regulated markets in financial centers with local staff, according to local regulations and in proximity to respective national customers. This applies to the Brussel, Amsterdam, Frankfurt, Lisbon, Paris cash equity markets, to the derivatives markets operated by Eurex and Liffe as well as to markets operated by further partners to join the combined group.
- Divisional management and group management functions would be
allocated among the main financial centres of the group as follows:
- Divisional leadership for Information Services in Amsterdam, for Cash Equities in Paris, for Derivatives in Frankfurt and London, for IT in Frankfurt and Paris and for Clearstream in Luxembourg
- Leadership for group functions would be split between Amsterdam, Frankfurt and Paris
- Subject to user consultation, the group would plan to streamline the trading infrastructure by adopting NSC as the combined cash equity trading platform and Eurex as the combined derivatives trading platform.
- The IT of the combined group would operate as a service provider to the business divisions with hubs in Frankfurt and Paris. The IT divisions of both groups would be integrated into a joint venture with Atos, subject to an agreement with Atos.
In addition, the Deutsche Börse proposal - in contrast to the NYSE proposal - offers the Euronext shareholders a significantly higher share in the combined group than the net income contributions of the two companies would suggest: Based on prospected FY2006 net income contributions derived from broker consensus estimates, Euronext would contribute 36 percent to the net income of NewCo, whereas the share in NewCo for Euronext shareholders based on the volume weighted 3-months share price averages as of 16 June would be at 42 percent .
As previously stated, Deutsche Börse estimates that the combination with Euronext would generate pre-tax annual gross synergies of approximately €300 million. Deutsche Börse estimates that, of this amount, €60 million would be passed on to customers.
Deutsche Boerse believes its proposal does not entail significant execution risk. Deutsche Börse has initiated the pre-notification process to obtain antitrust clearance from the European Commission. Deutsche Boerse is prepared to make far-reaching proposals with regards to cash equities clearing in order to satisfy antitrust concerns and discussions with the Commission have been held in a constructive atmosphere. As far as Clearstream is concerned no antitrust issues are anticipated, since Clearstream operates predominantly as a fixed income platform and its business is not expected to be affected at all by the combination of Deutsche Börse and Euronext. With regard to regulation of the local stock exchanges, Deutsche Börse does not anticipate any significant regulatory hurdle: after Deutsche Boerse’s regulators join the Euronext college of regulators, there would be no particular need to ring-fence any stock exchange from any other regulatory interference or to limit the sharing of IT capabilities (databases, software development and maintenance, hardware) across the group.
The Management and Supervisory Boards of Deutsche Börse continue to believe that a combination with Euronext would be attractive for all the stakeholders of both groups:
- It would create the pan-European champion in the exchange industry
with complementary product competencies and superior technology
capabilities:
- A unique liquidity pool attracting international issuers as well as growth companies under a European regulatory environment
- A derivatives product offering in both equities as well as all the entire Euro denominated interest rate product range
- horizontal and vertical operating models as required by different markets and customer groups
- It would be able to make a major contribution to the further development and integration of financial markets and to regulatory harmonisation in Europe.
- With its federal approach, the combination would be the natural nucleus for further European consolidation in the industry. In particular, Deutsche Börse would hope to win Borsa Italiana short term as a further partner to join.
- With a combined market cap of about €18bn and a widely distributed shareholder base, it would have by far the most liquid stock in the sector and be one of the few listed exchanges without share overhang.
- It would offer very attractive and credible revenue and cost synergies as well as significant value distribution to shareholders and an optimised capital structure.
- The integration and harmonization of the trading infrastructure of Deutsche Börse and Euronext would result in significant efficiency gains and reduced fees for customers.
Deutsche Börse Chairman Kurt Viermetz added: “The Supervisory Board has expressed its strong support for the revised proposal. We are convinced that on the basis of our revised proposal, stressing balance and federal concepts successfully developed by Euronext in the past, our proposal is convincing for Euronext stakeholders as well as for further partners in European countries, like Italy.”
