Deutsche Börse talks tough on Euronext merger prospects

Deutsche Börse talks tough on Euronext merger prospects

Deutsche Börse CEO Reto Francioni says the exchange continues to favour a merger with European rival stock exchange operator Euronext despite initial talks between the two parties stalling.

In a press briefing, Francioni said consolidation will enable European exchange operators to strengthen their position in relation to non-European operators, particularly those in the US. In light of this, the exchange has analysed the consolidation options and come to the conclusion that, a merger between Deutsche Börse and Euronext "is the most appealing" option.

Euronext confirmed the merger talks earlier this month but said discussions had stalled after the two exchanges failed to agree on the handling of management, ownership and technology issues of a combined group.

But in a statement with Deutsche Börse's fourth quarter and full-year 2005 results, Francioni says the German exchange continues to be in favour of a dialogue with a view towards a merger of two exchanges: "A combination of Deutsche Börse and Euronext is by far the most attractive among a large number of relevant options – for customers and shareholders, as well as for the financial centres involved."

The Börse says it would take a "pragmatic approach to consolidation without giving up material parts of its business portfolio" and this approach includes participating in a discussion on different formats of a single European equity clearing house.

The vertically-integrated business model favoured by the German bourse - in which trade execution and post-trade clearing and settlement are housed under one roof and owned and controlled by the Exchange operator - has been criticised by market users who fear that it distorts competition and drives up costs.

Euronext has also been overtly critical of Deutsche Börse's preference for a centralised management model. In today's satement, Francioni argues that management of the business areas of the combined group should be divided between its own and Euronext's existing locations so that a "fair balance" is achieved, but adds that the merged entity's headquarters should be in Frankfurt.

Furthermore, Deutsche Börse says IT "would be vital in a combination" and "considerable synergies" could be realised quickly and reliably if the new company is responsible for the integration of the trading infrastructure.

Shareholders who have previously opposed a merger between either exchange and the London Stock Exchange - such as US hedge fund Atticus Capital - have indicated that they would be in favour of a link up between Deutsche Börse and Euronext. A combined exchange would overtake the LSE as Europe's marketplace for securities trading.

In its earnings update, Deutsche Börse says full year 2005 Ebita was EUR710.9m, up from EUR527.6m the year before and was boosted by high trading volumes on Eurex. Fourth-quarter net profit rose to EUR98.5m, while revenue was up 12% to EUR409m.

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