FRANKFURT — Exchange operators Deutsche Boerse AG and NYSE Euronext Wednesday said the European Union has informed them of its decision to prohibit the planned $17 billion combination.
Both would-be merger partners said that the EU Commission concluded "that the combination would significantly impede effective competition and declared the concentration to be incompatible with the Common Market," despite remedies offered by both companies.
Both companies said it will now be impossible to fulfill one of the completion conditions for the exchange offer, that the EU clearance must be received by March 31. As a result, the exchange offer will automatically lapse once the merger partners officially receive the prohibition decision, they said. The merger partners will publish the termination offer and will unwind the offer, they said.
The EU's 27 commissioners were discussing the decision at a meeting Wednesday morning. A person familiar with the matter confirmed that "the EU has adopted its position as opposed."
With their decision to reject, on antitrust grounds, the plans to create the world's largest exchange in terms of market capitalization, all 27 EU commissioners backed the opinion of EU antitrust chief, Joaquin Almunia.
Almunia had argued the combined businesses would dominate Europe's on-exchange derivatives trading, giving the proposed new company a 93% market share in that region. He rejected requests by the exchanges for the review to include derivatives that are traded over-the-counter rather than only those on exchanges, which would effectively reduce their total market share to below 15% in Europe and below 4% worldwide. He also rejected calls by the exchanges that the review should take into consideration that today's derivatives market is global.
"The Commission's decision is highly regrettable and very hard to comprehend," the chairman of Deutsche Boerse's supervisory board said. "It negates the existing, fast-growing global competition among exchanges and it contradicts reality in putting up a strict separation between the exchange-traded and OTC derivatives markets. For Europe, the decision squanders a great opportunity to create a globally competitive exchange based in Europe and Germany and with a strong U.S. partner," Chairman Manfred Gentz said.
Deutsche Boerse said, however, that it is in a position for growth even without a merger, following earnings and revenue growth in 2011.
Concessions offered by both merger partners were deemed insufficient to ease competition concerns.
Both exchanges now have to consider other, stand-alone options. They are unlikely to come up with a revised merger plan to the current offer which ends March 31. They could challenge the EU decision in court, but such proceedings could take at least a year.
NYSE Euronext said Wednesday that, in view of the rejection, that it would focus on the standalone strategy "that has delivered strong growth and diversification of its core businesses and that it would leverage its financial strength to return capital to shareholders." It added that it would resume a $550 million share-repurchase program after the release of its fourth-quarter results Feb. 10.
An open question is whether both would-be merger partners, who closely looked into each other's books, will return to their roles as competitors or whether they will join forces on a sub-regulatory level, possibly with a focus on key growth markets such as Asia and Latin America.