Euronext NYSE merger: Geofinance trumps eurofinance

In the fast-pacing saga of public stock market consolidation, it looks like we have reached a new threshold. On Monday, May 22, the New York Stock Exchange (NYSE) announced a proposal to merge with Euronext, in a transaction valued at 21 billion euros. The other Euronext suitor, the Deutsche Börse, decided not to counter-bid. This was due not just to a fear of overbidding but also to a clear preference of Euronext management for the US partner.
NYSE-Euronext merger is far from a done deal, as it still requires approval of Euronext shareholders and is likely to face a series of regulatory hurdles, which while not necessarily deal-breaking are likely to be time-consuming. Nevertheless, the odds of the merger are better than even.
This is not the only transatlantic potential combination in this sector. Over the last few weeks, the other major US stock exchange, NASDAQ, has been building a strategic stake in the perennial bride of the European exchanges, the London Stock Exchange. NASDAQ now controls over 25% of the share capital, which gives it’s a blocking minority. It is difficult to see how the LSE could remain independent.

I am not sure how many analysts and pundits, who have been following the European exchanges consolidation expected this outcome. After all, European exchanges had better trading technology and in case of Euronext and DBAG, a more balanced business models. They went public long before their US counterparts.
US exchanges were late in coming to the public markets. It is only three months ago that NYSE went public. However, they more than made up for the lag by obtaining considerable higher multiples and valuation. Thus, their acquisition power was much stronger. In both potential mergers, the US exchanges will be the senior partners.

It is way too early to speculate about the chances of success of the two operations. For one thing, this is more an end of a beginning rather than a beginning of an end. However, one inescapable conclusion can already be drawn: the notion of eurofinance is no more than a fanciful and fragile political construct. If exchanges are going to accompany their investors and customers, they cannot remain within their traditional heartlands. The reality of cross-border capital and market flows is global: Geofinance trumps eurofinance.