NYSE Euronext and Deutsche Borse announced their merger Tuesday morning, creating “the world’s premier global exchange group, the world leader in derivatives trading and risk management, and the largest, most well-known venue for capital raising and equities trading,” the exchanges said.
The combined exchange will have dual headquarters in New York and Frankfurt. A new name for the entity was not announced.
“The capital markets are rapidly changing and evolving,” said Jan Michiel Hessels, chairman of the board of directors of NYSE Euronext at a press conference. “No longer are markets defined by individual market centers.”
The combined exchange “will be a real leader and shape the entire industry,” added Manfred Gentz, chairman of the supervisory board of Deutsche Borse.
Deutsche Börse shareholders will own 60% of the newly merged exchange, and NYSE will control 40%. One Deutsche Börse share will be exchanged for one share of the new company's stock, and each NYSE Euronext share will be exchanged for 0.47 share of the new company stock.
Duncan Niederauer, chief executive of the NYSE, will be CEO of the new company, and Deutsche Borse CEO Reto Francioni will be chairman.
The combined group will have 2010 combined net revenues of $5.4 billion and 2010 EBITDA of $2.7 billion.
The exchanges said that based on 2010 net revenue, 37% of its income will derive from derivatives trading and clearing; 29% in cash listings, trading and clearing; 20% in settlement and custody; and 14% in market data, index and technology services.
The two firms said they would save about $400 million in operating costs, from economies of scale in information technology, clearing operations, market operations and corporate center functions. And they expect to boost combined revenues in clearing services, new products and cross-selling between stocks and derivatives.
Meanwhile, on Monday, rumors circulated that a desire to strengthen its derivatives business was prompting CME Group, the parent company of the Chicago Board Options Exchange and the Chicago Mercantile Exchange, to make a last-minute rival bid for NYSE Euronext, either alone or along with Nasdaq OMX Group.
At the heart of the bidding war is a keen interest in profitable derivatives trading, as stock trades continue to move to high-speed, far cheaper electronic networks. In addition, the financial reform bill is requiring many types of derivatives to be traded on exchanges.
Meanwhile, the London Stock Exchange is planning to acquire the Toronto Stock Exchange for much the same reason.