NYSE Euronext (
) and Deutsche Boerse AG of Germany recently announced a merger
that will create the world's largest financial exchange. NYSE is
the world's largest stock exchange in the world by
market capitalization of its listed companies and Deutsche
Boerse AG is the largest stock exchange operator in Germany. NYSE
Euronext's main competitors are
We have a price estimate of
for NYSE Euronext's stock, which stands below market price.
The new company emerging out of the merger of NYSE Euronext and
Deutsche Boerse will likely be incorporated in the Netherlands.
Deutsche Boerse shareholders will hold approximately 60% and
NYSE Euronext shareholders would hold approximately 40% of the
combined company's equity. The combined group is expected to have
headquarters in Frankfurt and New York. Deutsche Boerse
Chief Executive Reto Francioni will become chairman and NYSE
Euronext chief Duncan Niederauer will be the new company's CEO.
NYSE has seen its market share decline over the past few years
due to rising competition and increased electronic trading. It has
searched for alternative methods of growth and has acquired
European electronic exchange Euronext in 2006 to form a combined
entity which is now known as NYSE Euronext. Growing competition
from electronic exchanges forced the two companies to consider a
potential combination of business.
The deal will allow NYSE Euronext and Deutsche Boerse to emerge
as the largest player in the derivatives trading market, which is
currently dominated by CME Group. The combined entity should also
benefit from new regulations that require OTC swaps to go through
clearing houses in order to add transparency to the market.
Cost Reduction Should Add Value to NYSE Euronext
NYSE Euronext and Deutsche Boerse AG anticipate that the
business merger could generate 300 million euros ($450 million) in
cost savings principally from economies of scale in information
technology, clearing operations, market operations and corporate
We expect NYSE Euronext's operating margin in U.S. cash equities
to remain in the 11%-13% range during our forecast period. However,
should cost savings from the merger push these operating margins
towards 20%, it would imply 15% upside to our price estimate for
NYSE Euronext's stock. NYSE Euronext's stock price jumped by 14%
after the initial announcement of a potential merger with Deutsche
Boerse AG on Feb 9, reflecting a similar expectation from