Deutsche Bourse plans to buy NYSE
2011-02-17 16:59:36
ON the face of it, a German company is buying an icon of American capitalism.
The reality of Deutsche Boerse AG's proposed acquisition of the New York Stock Exchange is a little more complex.
For one thing, two of Deutsche Boerse's largest shareholders are American.
Also, the parent company of the New York Stock Exchange isn't entirely American. NYSE Euronext Inc was formed in a merger between the NYSE and a group of European exchanges in 2007. Euronext itself was created in 2000 from the combination of stock markets in Paris, Brussels and Amsterdam.
Welcome to the global financial world. The proposed merger of Deutsche Boerse and NYSE Euronext would create a worldwide owner of financial markets that would be incorporated in the Netherlands. The new firm would have dual headquarters in New York and Frankfurt.
"The deal reflects the global realities of today," said Saikat Chaudhuri, assistant professor of management at The Wharton School of business.
NYSE Euronext is already global. United States stock and derivatives trading contribute only 14.4 percent of its revenue, while 34.6 percent comes from European trading. The rest comes from listing and technology alliances with partners such as the Tokyo Stock Exchange and the Hong Kong Stock Exchange. NYSE Euronext represents stock and derivatives exchanges based in six different countries.
Similarly, Deutsche Boerse owns the American options exchange International Securities Exchange. It also shares the ownership of derivatives exchange Eurex with the Swiss Exchange. Five of its 10 largest shareholders are American, according to information provider FactSet. Franklin Mutual Advisers owns 4.2 percent of Deutsche Boerse, while Capital Research owns 2.9 percent. Both investors are based in California.
Like the exchanges they're listed on, US companies are also increasingly doing business overseas. According to Standard & Poor's, about half of the revenue of the US firms in the S&P 500 index come from overseas, versus 30 percent in 2000.
"By building a global exchange they are in a better position to take advantage of increasingly global firms that want to be listed in multiple countries," said Chaudhuri.
The merger agreement announced on Tuesday must still be approved by shareholders of both companies and regulators in the US and Europe.
While catering to the global reach of their clients played a role in their decision to merge, so did saving costs. Some of NYSE and Deutsche Boerse's largest competitors are computerized stock exchanges that allow sophisticated investors to profit from minuscule price changes in trading that takes place in milliseconds.
NYSE wouldn't be the first iconic American company to be bought by a European firm. Anheuser-Busch, which makes Budweiser beer, was bought by Belgian-Brazilian brewer InBev in 2008.