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Deutsche Boerse merger appeal given slim chance
March 20, 2012 / 3:42 PM / 6 years ago

Deutsche Boerse merger appeal given slim chance

BRUSSELS, March 20 (Reuters) - Antitrust lawyers said Deutsche Boerse was unlikely to win its appeal against the European Commission’s rejection of its merger with NYSE Euronext and may be challenging the ruling only to ease the way for future deals.

The Commission blocked the $7.4 billion tie-up last month, scotching a deal that would have created the world’s largest exchange, arguing that it would have given the combined group a near-monopoly in the worldwide market for European derivatives.

Frustrated by the ruling, and especially how it defined the derivatives market, Deutsche Boerse announced on Monday it was appealing to Europe’s General Court, the lower chamber of the European Court of Justice.

Lawyers said Deutsche Boerse may hope that the court will acknowledge the Commission adopted a narrow approach, giving it some technical cover for any future acquisition attempts in a rapidly consolidating market.

While not unprecedented, lawyers see the appeal as a near-desperate effort by Deutsche Boerse with little chance of success - the General Court overturns Commission rulings only around 15 percent of the time, and even less in merger cases.

The last time such an appeal succeeded was in 2002.

“The chances that they are going to win this are next to zero,” said one Brussels-based antitrust lawyer, whose firm is not representing any of the parties involved. “I really don’t understand why they’re pursuing it.”

The Commission said on Tuesday it was ready to meet the German exchange in court. That may not come for many months since it can take up to a year for appeals to be heard.

“We will defend our decision in court,” said Antoine Colombani, the Commission’s spokesman on competition issues.

“This merger...would have created a near-monopoly on the global market, which is the market for exchange-traded derivatives, which are based on European underlyings.”


Derivatives were always the central focus of the merger investigation, with the EU’s competition authorities highlighting concerns after consulting more than 700 market participants and producing a 459-page assessment.

Deutsche Boerse and NYSE Euronext refused to make concessions, such as the German operator selling its Eurex derivatives business or NYSE selling its London-based futures exchange Liffe.

They argued that the Commission used too narrow a view of the derivatives market by discounting the vast over-the-counter segment. If that was included, they said, it would make their overall market share substantially less.

While the detail of Deutsche Boerse’s appeal will only be clear when it is lodged, Chief Executive Reto Francioni underlined after the merger was blocked on Feb. 1 that he was unhappy about the market definition employed.

“Deutsche Boerse is of the view that several aspects of the decision are incorrect,” the Frankfurt-based company said in a statement on Monday.

NYSE Euronext’s Chief Executive Duncan Niederauer said in January the decision to exclude over-the-counter trade ignored the realities of the marketplace.

“They don’t want to have the Commission’s definition set in stone, because then it might become a benchmark for future rulings,” said a second lawyer. “They want to broaden the definition, or else get the Commission on a technicality.”

The General Court has in the past overturned Commission rulings on procedural grounds, but that leaves the substance unaffected. In this case, Deutsche Boerse needs to see the court dispute the substance of the Commission’s ruling.

Analysts see that as unlikely.

“The move... is about receiving acknowledgement that the market view chosen by the European Commission is artificially narrow and thus wrong and cannot be maintained in future decisions,” said analyst Christian Muschick at investment bank Silvia Quandt.

“I could imagine that the court will call the market view narrow, but within the area of discretion of the European Commission,” he said.

Another goal, and one that would be reinforced if NYSE Euronext joined Deutsche Boerse in the appeal, would be to protect the companies against investors who might sue them for the failure of the merger.

The German operator said last month the failed tie-up cost it 82 million euros in 2011 and NYSE may have incurred similar costs. A successful appeal may recover some pride and reputational lustre, if not any of that money.

Lawyers expect the appeal to cost Deutsche Boerse about three million euros, which they say is relatively little given what it has already spent.

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