(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By Quentin Webb
LONDON, Feb 26 (Reuters Breakingviews) - A $32 billion union
between CME Group (CME.O) and Deutsche Boerse AG (DB1Gn.DE) is
logical - and unlikely.
Bloomberg reports that the American CME recently made
overtures about creating a global futures powerhouse. The German
group doesn’t deny receiving an approach, but says it is not
holding “merger negotiations”. Still, the appeal to CME is
Bourses spend heavily on technology, so joining forces means
major cost cuts. The overlap is imperfect, since Deutsche Boerse
is big in cash equities, unlike CME. But Berenberg says annual
synergies could still reach about $200 million, worth about $1.3
billion taxed and capitalised, Breakingviews estimates. CME
could stop building its own London derivatives market. And the
combined group would be more attractive to potential Asian
business or merger partners.
In 2012 Brussels vetoed a NYSE Euronext NYX.N deal with
Deutsche Boerse. But CME-DB’s antitrust problems might be
surmountable. With NYSE, the European Commission had feared a
combined stranglehold in European interest-rate derivatives -
and, importantly, judged the U.S.-focused CME a bit-player.
Adopting the same market-by-market focus could allow this deal
Nonetheless, many things could get in the way of a deal.
Banks will not like the prospect of one group handling 60
percent of global listed interest-rate derivatives. They might
prompt regulators to think more holistically. And, politics,
often a deal-killer for exchanges, are a problem. CME and
Deutsche Boerse are important fixtures in Chicago and Frankfurt
respectively, and neither city wants to lose jobs or prestige.
The biggest obstacle, however, could be Deutsche Boerse
itself. It would be the smaller partner by earnings and,
especially, by market value, since CME enjoys a premium rating.
So CME investors would have the majority of a combined group in
a presumably share-based deal. There would probably be fewer
posts for the Frankfurt company’s managers, and Chicago would be
the obvious headquarters.
But unlike NYSE, which recently sold itself to ICE (ICE.N),
Deutsche Boerse has no pressing reason to cede its independence.
And it can point out that exchange mergers often end in
time-consuming, costly failure. So it looks unlikely to accept
anything less than a knockout bid.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- On Feb. 25 Deutsche Boerse said it was not in merger
negotiations with CME Group, the U.S. exchange operator. The
denial followed a report by Bloomberg, which said CME had
approached the Frankfurt bourse to consider beginning talks on a
- Citing people familiar with the situation, the newswire
said CME made its approach late in 2012 but Deutsche Boerse -
whose takeover of NYSE Euronext was blocked by European
regulators last year - was hesitant about entering discussions.
A merger would unite the biggest U.S. and European futures
- Deutsche Boerse said its “primary strategic focus is on
organic growth, mainly by expanding its business into growth
regions in Asia, extending its services for unsecured and
unregulated markets, and expanding its combined market data and
- Bloomberg article link.reuters.com/dej36t
- Deutsche Boerse statement link.reuters.com/fej36t
- Reuters: D.Boerse denies CME talks, but some see logic of
a deal [ID:nL6N0BP9PM]
Cutting losses [ID:nL1E8NK2T3]
London calling [ID:nL4E8JK306]
- For previous columns by the author, Reuters customers can
click on [WEBB/]
(Editing by Edward Hadas and Sarah Bailey)
Keywords: BREAKINGVIEWS DB/CME
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