What Happened To The Deutsche Boerse NYSE Deal?

THE WSJ AND REUTERS REPORTED TODAY that the Deutsche Böerse take-over of the New York Stock Exchange is “heading for the rocks”.

So what happened here?

And was it ever really expected that this deal would go through?

Here are the facts:

It’s unquestionable that the Deutsche Böerse has a greater degree and percentage of liquidity than the NYSE. It was apparent to me back in 2009 that the relative strength of the Deutsche Böerse would see it as a preferred place to exit or capitalize in the coming decade. I was impressed with their system and their underwriting process. Wall St, naturally enough, was virtually oblivious to this.

“You mean Germany has its own stock market?” was the response I received from a noted private equity fund manager. As we all know, it’s hard for New York to consider that something real can exist outside of Manhattan.

There is a deep-rooted psychological aversion to actually admitting that the Deutsche Böerse take-over was just that – a take-over. The media, particularly inside the US, has continued to refer to it as a merger. However, it was unequivocally a take-over bid. As much as it really didn’t register in the US as a nationalistic issue – perhaps because it was just too uncomfortable to admit – it doesn’t mean that the markings of this next step towards globalization were not felt.

Fundamentally, the key attraction is that Börese employs a unique systemized approach, not only to underwriting, but also to regulatory statutes and, importantly, investment. The automation they use is central to why the Deutsche Böerse has become a model for numerous exchanges around the world, including the NYSE.

However, here’s a weightier issue:

It’s arguable that European anti-trust regulators were never, ever going to approve this deal, no matter how strong, sweet or good it was for global capital markets. In fact, it’s not just arguable, it’s highly likely. And, I have it from very good sources that both sides went into this fully knowing that was the case.

So what motivated this? Was it merely a public relations push?

Well, it’s deeper than just public relations. We must accept that, whether now, or a year from now, or twenty years from now, consolidation of the exchanges will occur. It’s inevitable. And 2010 and 2011 saw a slew of international exchanges attempting to consolidate based largely on the desire to open up more access to potential capital markets and, thus, encourage easier trading. Of course, few – if any notable – actually went through.

There’s potential this was all a dog and pony show – but one where the players were indicating to the other players how, who and where they would bet their chips. Undoubtedly, it has given the Deutsche Böerse an unprecedented amount of media and raised its profile massively in the USA. This is very important to the Deutsche Börse and it will allow Europe’s largest exchange – and, indeed, the world’s most profitable one – to attract more serious companies and investors. I think that’s a great pay-off for everyone. Furthermore, it will encourage investors Stateside to be more open-minded with investments, backed by the understanding that there is real and substantial liquidity and stability overseas.

All in all, this is a taste of what’s to come. It may not happen tomorrow, but the markings are now laid for wise investors and astute company owners to be more selective with how they plan their exit strategies.