The exchange merger market has been keeping quiet since the flurry of deals in 2006 and 2007 that saw the New York Stock Exchange merge with Euronext, NASDAQ buy OMX, Chicago’s two big exchanges merge and the LSE do a deal with Borsa Italiana. This year has been a different story and the market is rife with bids and counterbids.
Recent months have seen the Deutche Boerse and NYSE Euronext proposed bid face concerns from staff about job cuts. Nasdaq OMX and the Intercontinental Exchange have abandoned their $11.3bn break-up bid for NYSE Euronext after the Department of Justice threatened to sue the companies saying that the combined operations would “substantially eliminate competition.” The LSE faces opposition for its bid for TMX Group from a group of Canadian banks and pension plans, which has lodged a US$3.7bn counterbid designed to safeguard TMX for Canada. The Australian authorities in April also blocked a bid by Singapore’s SGX for the ASX exchange.
Reasons for the surge of bids is difficult to attribute to a single factor; economies of scale and improved liquidity may be a few attributing factors but in reality these are not the driving force. One of the main advantages of the Deutsche Boerse-NYSE Euronext merger, if it is allowed to go ahead, will be its 90 percent share of the European futures market. But this is yet to be seen. The regulators are still to make their minds up and fears over systemic risk may see them slam the brakes on. Many believe that exchanges becoming too large will mean that they will become unmanageable.
It is possible that we are reaching a point where exchanges will be unable to consolidate. Regulators are still thinking about legislation in the exchange landscape and now may not be the ideal time for a merger.
What this now means for the LSE is unclear – they may have to walk away from the TMX deal after the strong opposition from Canadian banks and pension plans, but the Deutche Boerse and NYSE Euronext proposed bid may still have a chance – now the counter bid of Nasdaq OMX and ICE is dead in the water. What is becoming clearer is that from the flurry of recent activity no exchange wants to be left out in the cold, and they are looking to overcome any obstacles that present themselves to go ahead with cross-border consolidation.