NYSE Reaches Landmark Deal With Euronext

by Mike Godfrey, Tax-News.com, Washington

05 June 2006

The New York Stock Exchange (NYSE) and Euronext, the pan-European exchange group, have signed an agreement to combine their respective businesses in a merger of equals.

The new group, to be named NYSE Euronext, is likely to globally redefine the marketplace for trading cash and derivatives securities, and the NYSE stated last week that the merger will have "significant benefits" for shareholders, issuers and users.

The strategic partnership creates the world’s largest and most liquid securities marketplace, with a combined market capitalisation of around EUR15 billion ($20 billion). With global market leadership positions across cash equities, derivatives, market data and technology, NYSE Euronext will be the world’s most liquid marketplace, with average daily trading value of approximately EUR80 billion, and the world’s premier listing venue, with total market capitalisation of listed companies at around EUR21 trillion.

NYSE Euronext will be a US holding company, the shares of which will be listed on the NYSE, trading in US dollars, and on Euronext Paris, trading in Euros. Its US headquarters will be located in New York, and its international headquarters in Paris and Amsterdam. London will be the centre for its derivatives business.

Under the terms of the agreement, each share of NYSE will be converted into one share of NYSE Euronext common stock. Euronext shareholders will be offered the right to exchange each of their shares for 0.980 shares of NYSE Euronext stock and EUR21.32 in cash and will be able to elect to receive all shares or all cash through a “mix and match” procedure, subject to proration. Euronext will also pay its previously announced extraordinary distribution of EUR3 per share.

Both parties believe the merger will create substantial value for all stakeholders through the realisation of pre-tax annual cost and revenue synergies estimated at EUR295 million. Of this amount, approximately EUR195 million will result from the overall rationalisation of the combined group's IT systems and platforms.

Over the next three years, NYSE Euronext’s three cash trading systems and three derivatives trading systems will be migrated to a single global cash and a single global derivatives platform. In addition, 10 data centres (six in the US and four in Europe) will be reduced to four globally-linked data centres (two in the US, two in Europe), and four networks will be reduced to one.

The NYSE and Euronext estimate that the new company's leading position in cash equities, listings and derivatives creates opportunities to expand the combined revenue base by an estimated EUR80 million over a three-year period.

NYSE Euronext intends to create new products with global reach, increase its share of international listings and materially strengthen its competitive position in the US equity derivatives market, the largest such market in the world.

NYSE Euronext will have a balanced management team and organization. The Chairman of NYSE Euronext’s single-tier Board of Directors will be Jan Michiel Hessels, Euronext’s current Supervisory Board Chairman, and Marshall N. Carter, NYSE’s current Chairman, will become Deputy Chairman. John A. Thain, NYSE’s current Chief Executive Officer will be Chief Executive Officer of NYSE Euronext and Jean-François Théodore, Euronext’s current Chief Executive Officer, will be Deputy CEO and Head of International Operations of the combined company. Messrs. Théodore and Thain will also join the Board of NYSE Euronext. The Board of Directors of the combined company will be initially comprised of 20 directors, 11 directors designated by NYSE and 9 directors by Euronext.

Each of NYSE Euronext’s markets will continue to be regulated in accordance with local requirements. Specifically, NYSE Euronext’s European markets will continue to be regulated by their existing regulators, and the SEC will continue to regulate the US markets.

The NYSE Euronext exchange offer for Euronext shares is expected to be launched within 6 months, following the satisfaction of certain conditions, including receipt of regulatory approvals and NYSE and Euronext shareholder approval.

Prior to the agreement with the NYSE, Euronext had been exploring a number of strategic partnerships, including with the London Stock Exchange and Deutsche Boerse. Between them, Euronext and Deutsche Boerse control virtually all of the exchange-traded derivatives markets in Europe, and about half of the global total.

However, Jan Michiel Hessels, Chairman of the Supervisory Board of Euronext, stated Thursday that: "We strongly believe NYSE is the best partner."

"This merger of equals, based on a balanced governance structure, will deliver significant shareholder value from substantial, quantified and deliverable synergies, and will allow Euronext to play a full role in reshaping the global capital market," he noted.

John A. Thain , Chief Executive Officer, NYSE Group, added: "A partnership with Euronext fulfills our shared vision of building a truly global marketplace with great breadth of product and geographic reach that will benefit all investors, issuers, and our shareholders and stakeholders.”

Euronext provides services for regulated stock and derivatives markets in Belgium, France, the Netherlands and Portugal, as well as in the UK (derivatives only). It is Europe’s leading stock exchange based on trading volumes on the central order book.

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