The Deutsche Borse has issued a proposal spelling out the rationale for a potential merger with Euronext NV.

Deutsche Borse says it sees the following advantages of a combination of Euronext and Deutsche Borse:

  • the combination would create a truly pan-European exchange 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 trading infrastructure would result in significant efficiency gains;
  • the combination holds the potential for additional growth, significant cost synergies as well as an optimized capital structure; and
  • t 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.

Deutsche Borse proposes that a deal be a merger of equals. It imagines a new parent company, based in the Netherlands, should act as a holding company for both 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 organization.

The combined business model would aim to continue the success of both Euronext and Deutsche Borse whilst generating further growth as well as operational and financial synergies. Deutsche Borse 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 Borse and Euronext businesses into the new group, including Deutsche Borse’s post trading activities. Also, 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. Deutsche Borse expects that existing approaches on multi-national regulatory coordination as developed by Euronext could serve as blueprints for the future of the new group.

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.

The new holding company would be based Amsterdam and listed in Paris and Frankfurt. Headquarters will be located in Frankfurt, cash equity trading and listings activities will be led from Paris and will continue to be operated by the local stock exchange organizations, 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, and IT operations will be managed from Frankfurt.

The combined group shall have a two tier board structure, with both the executive board and supervisory board split equally.

Deutsche Borse says it is committed to building a leading global exchange organization with Euronext on the basis of a shared vision and a true partnership. “Deutsche Borse 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,” it adds.

“As previously stated, Deutsche Borse’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 Borse chairman Kurt Viermetz.

Deutsche Borse 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.