European regulators said in an expected move on Tuesday they have no objections to the proposed $13.8 billion merger between Euronext and NYSE, removing a hurdle for the first transatlantic stock exchange.
Euronext, whose shares rose more than 3 percent after the announcement, in June accepted a $10 billion merger proposal from the NYSE Group, parent company of the New York Stock Exchange, in a deal now worth $13.8 billion based on current share prices. Both companies say it is a merger of equals.
Merger talk between major exchanges has been swirling since earlier this year, as stock exchanges around the globe face pressure to consolidate to cut costs and increase execution speed. As bourses demutualise from member-only clubs to publicly traded companies, investor demand in the sector has been high.
"We can at this point confirm that we as the college of Euronext regulators are not minded to object to the proposal for the Euronext NYSE combination," the regulators said in a letter to Euronext Chairman Jean-Francois Theodore.
Theodore said recently the groups were close to obtaining agreement for the deal from the US Securities and Exchanges Commission (SEC) and European regulators.
"The road to the merger is pretty clear," said Ivo Luiten, analyst at IRIS research institute, adding that shareholders would be likely to be in favour of the merger if Euronext can convince them that American regulations would not apply to European companies.
A vote on the merger is scheduled in two weeks. A final decision by a committee of Euronext regulators will depend on certain assurances and commitments from the bourses, Dutch market regulator AFM said on behalf of a committee of European regulators in a statement which contained the letter.
Shares in Euronext were up 1.5 percent at 86.55 euros at 1120 GMT having touched a high of 88.90 after the news. The European regulators also said they were working with the SEC on a memorandum of understanding for co-ordinated regulation and supervision of the Euronext-NYSE group, to be signed when the merger receives required approvals and the merger offer is unconditional.
The merger is on track to be completed in the first quarter of 2007 after all approvals have been obtained, a spokesman for Euronext said, adding that the regulators' decision was a positive signal.
Euronext board member Olivier Lefebvre said last week that he expects Euronext shareholders to vote in favour of the merger at a extraordinary meeting on December 19. NYSE shareholders will vote on the merger on December 20. The endorsement from regulators on Tuesday makes it more likely that Euronext and NYSE will forge the first merger between two big stock exchanges.
Germany's Deutsche Boerse had also sought a merger with Euronext, but scrapped plans last month. Nasdaq Stock Markets Inc is trying to take over the London Stock Exchange, which had rebuffed previous take-over approaches from rivals such as Deutsche Boerse, Euronext, Australia's Macquarie Bank and a previous attempt by Nasdaq.
Euronext and NYSE have proposed to put their European operations - which include the Paris, Amsterdam, Lisbon and Brussels bourses, and London's Euronext.Liffe derivatives market under the management of a Dutch foundation to keep them out of reach of US rules such as the Sarbanes-Oxley legislation.
There has been concern in Europe that strict US accounting and governance rules such as Sarbanes-Oxley could be extended to Euronext markets through the merger.
"The college (of Euronext regulators) considers that the foundation as set up in the draft documents could act as a remedy against future spill over, in case its functioning would be triggered," the regulators said in their letter on Tuesday.
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