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UPDATE 1-Deutsche Boerse appeal seen having "near zero chance"
March 20, 2012 / 5:22 PM / 6 years ago

UPDATE 1-Deutsche Boerse appeal seen having "near zero chance"

* Deutsche Boerse to appeal Commission’s rejection of merger

* Tie-up would have created world’s largest exchange

* Commission rejected $7.4 bln deal over derivatives concerns

By Luke Baker

BRUSSELS, March 20 (Reuters) - Antitrust lawyers see scant chance that Deutsche Boerse AG will win its appeal against the European Commission’s rejection of its merger with NYSE Euronext, saying it 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 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 said on Monday it was appealing to Europe’s General Court, the lower chamber of the European Court of Justice.

Lawyers said Deutsche Boerse may be hoping the court will decide that the Commission adopted an overly narrow definition of the derivatives market, giving it technical cover for any future acquisitions in a rapidly consolidating market.

But some lawyers still see the appeal as a near-desperate effort by the Boerse and one with little chance of success - the General Court has overturned Commission rulings only around 15 percent of the time, and even less often 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,” said Antoine Colombani, the Commission’s spokesman on competition issues. “It was the right decision because this merger, if it had taken place, would have created a near monopoly on the global market.”


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

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

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

Supporters of the deal say that while the two operators would have had a strong hold on the exchange-traded derivatives business, OTC trade accounts for 95 percent of the total market. Regulators also want more OTC trades shifted onto exchanges, something the merger might have achieved.

“There is either a fundamental flaw in the EU’s policy or in the decision,” an adviser to the exchanges said. “There is every reason to have this ruling more carefully examined.”

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

NYSE Euronext 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 ($108.6 million) 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 3 million euros, which they say is relatively little given what it has already spent.

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