NYSE Euronext has two marriage proposals on its hands, but both suitors may have trouble passing muster with competition watchdogs. The Deutsche Boerse $10.2 billion deal, already agreed, may have to go through a dramatic overhaul to satisfy European regulators' antitrust concerns, and appease US lawmakers resistant to a foreign owner.
Nasdaq OMX and IntercontinentalExchange countered on Friday with an $11.3 billion offer for NYSE that dodges those problems, but comes with a bunch of fresh ones. For example, antitrust experts said the all-American deal proposed on Friday could well run into trouble with the Justice Department's Antitrust Division.
"We have some very bad facts with this deal. Fact No 1 is that companies seeking listings and institutional traders are going to be raising holy hell," said Stephen Axinn of the law firm Axinn, Veltrop and Harkrider LLP. If they do, the deal will be in trouble, said Axinn. "I conclude that the transaction is likely to get stopped," he said. Evan Stewart, an antitrust expert at the law firm Zuckerman Spaeder LLP, said the deal faced a rough review.
"Regulators will have to struggle with the fact that there will be one place for companies to list securities in the United States," he said. "It's going to basically be the only game in town." Some early comments from US lawmakers on Friday showed that their worries about an NYSE merger run deeper than a foreign take-over. Democratic Representative John Conyers called the Deutsche Boerse plan "totally unacceptable," saying it would cut consumer choice and cost US jobs.
Of the Nasdaq-ICE offer, he said: "The latest offer is worse. Now we are talking about General Motors and Chrysler coming together, as if that is going to help the automobile industry." The outlook for NYSE's already-signed deal with Deutsche Boerse isn't so sunny either. EU Competition Commissioner Joaquin Almunia said two weeks ago he was concerned about business models like the Deutsche Boerse's in which the company owns the exchange, a clearing house and a depository.
"From the competition point of view, I tend to prefer models that are not a vertical silo," Almunia told a European Parliament hearing on Tuesday. "More open competition, more opportunities, this more open business model, together with interoperability from the competition point of view, is preferred." Almunia said he expected the European Commission to give the Deutsche Boerse play for NYSE Euronext a long, hard look.
In addition to a possible antitrust review, any NYSE merger or take-over would need to be approved by the US Securities and Exchange Commission, but the agency has not posed a tough hurdle in the past for exchange mergers. Lawmakers do not have an official role in approving mergers. They can, however, influence the public debate in a way that smoothes the way for a deal or effectively kills it.
It is too soon to call whether enough lawmakers will oppose the deals to influence their fates. "Obviously we now have a very new development that we have competing interests ... and we'll have to await further evaluation before we can draw any conclusions about the appropriateness of either one, or perhaps none of these mergers being appropriate," said Republican Representative Robert Goodlatte, chairman of the House Judiciary Committee's competition subcommittee.
NYSE Chief Operating Officer Larry Leibowitz had been scheduled to appear before the subcommittee on exchange consolidation on Friday, but cancelled due to the rival bid. What will happen at the end of the day? "No one knows. This is very fluid," said Zuckerman Spaeder's Stewart. "You have too many imponderables to say where it's going to end up." "Is the bidding war over? That's one imponderable. The other imponderable is will this pass muster with regulators here.