European Union: EU Competition: Deutsche Börse And NYSE Euronext Merger Blocked

Originally published February 3, 2012

Keywords: European Commission, Deutsche Börse, NYSE Euronext, merger control regime, single stock equity

On 1st February 2012, the European Commission adopted its decision prohibiting the USD 10.2 billion merger between Deutsche Börse (DB) and NYSE Euronext (NYSE). The decision is notable not the least because it is rare for the Commission to block a merger. Only 21 have been blocked compared to the 4,857 transactions that have been notified under the EU's merger control regime since its inception in 1990.

Companies, markets and position

The main issue related to the effect of the transaction on the worldwide market for European financial derivatives (namely, European interest rate, single stock equity and equity index derivatives) traded on exchanges. A derivate is a financial contract whose value is derived from an underlying asset. The Commission found that the merged entity would have held 90% of the shares on this market.

The parties argued that the market also covered non-European financial derivatives as well as derivatives traded outside of stock exchanges (or over the counter). The Commission nonetheless found that exchanges for derivatives based on European underlyings could be separated from other derivatives. As regards trade outside of stock exchanges, considering that the trades on over the counter exchanges are 200 times higher in value on average, in addition to being more risky and customised, compared to exchange derivatives, they were not considered substitutable by consumers, and as such could be excluded from the market.

According to the Commission in this market for exchange derivatives based on European underlyings, Eurex (DB) and Liffe (NYSE) are the two largest exchanges in the world and are each others closest competitors. The competitive pressure exerted by one on the other was considered strong, with customers threatening to switch to the other exchange, which in turn has lead in the past to lower fees. This raised competitive concerns that the parties failed to address, according to the Commission.

Remedies

Most mergers that involve more serious competitive concerns are usually approved after the parties submit remedies to solve the problem that the merger could eventually create. Such remedies are usually divestitures of branches, participations or assets, and behavioural commitments.

In the present case, the parties offered as remedy a series of three commitments (1) divestment of part of Liffe's European single stock derivatives business, (2) access to the merged entity's clearing house for materially "new" interest rate, bond and equity index derivatives contracts, and (3) licences to Eurex's interest rate derivatives trading software. A non-formal remedy was apparently also discussed in the course of proceedings, relating to the public commitment of the merging parties not to increase their prices for three years.

The Commission did not consider the remedies were responsive fully to the competition concern, as they were either too limited, or hard to implement or to monitor. It would appear the Commission wished for either one of Eurex or Liffe exchanges to be fully divested, which both parties considered as going against the economic rationale of the transaction.

Blocked mergers: a rare occurrence

Since the origin of the EU merger control regime, there have only been 21 formal decisions adopted declaring a proposed merger incompatible with the internal market and thus being prohibited as opposed to the several thousand that have been consented to, most of them unconditionally. Over the last seven years, only two other mergers have been blocked, both of those being mergers between airline operators from the same country (Ryan Air/Aer Lingues for Ireland and Olympic/Aegean for Greece), which on their face can be seen to be likely candidates for a prohibition decision, particularly in the light of previous airline merger decisions.

There is little doubt that the Commission decision blocking the merger while the US Antitrust Division of the Department of Justice (DoJ) authorised it under conditions, will resurrect the issue of consistency when global mergers are at stake. The same issue arose at the time of the GE/Honeywell proposed merger, but the DB/NYSE case is the first case raising such issues to be blocked since the introduction of the latest EU merger regime and the creation of the International Competition Network (ICN).

However, in the present case, due consideration must be given to the fact that the authorities looked at different markets. The US focused on issues on the US markets, and addressed these, most notably by authorizing the merger with remedies in the US cash equity market, by providing for the sale of DB's stake in the fourth largest stock exchange of the US, Direct Edge.

While a transaction conditionally cleared in the US but blocked in the EU is an uncomfortable prospect in terms of business planning, this is an unavoidable risk when it comes to multi-jurisdictional filing in order to respect the territoriality principle.

Policy aspects 

Merger decisions have to be taken collectively by the College of (27) EU Commissioners. It is the normal rule that the College follows the assessment of the Commission's competition department (DG COMP) and thus the Competition Commissioner, and validates the decision without question.

After the Commission had set-out its concerns about the merger in the so-called Statement of Objections, the parties launched a series of public statements. They also presented the "European champion" argument but this rarely appears a convincing one in the context of a competition analysis, even in the context of a College decision where some Commissioners might be persuaded to at least consider policy arguments that go beyond competition. However, in the last days preceding the deadline for decision, a notable event was the "reserve" expressed by the Commissioner for the Internal Market, Michel Barnier, who publicly stated he would need more time to assess the dossier for schedule reasons. Considering the importance of the financial sector to the Commissioner's mandate and in the light of the regulatory framework and foreseen or considered reforms and developments in this area, having a single strong entity on the stock exchange might be considered helpful for policy reasons (stakeholder dialogue, monitoring etc.).

While the parties claimed to have the support of a certain number of Member States and Commission officials, it is not publicly known whether there was any opposition to the decision amongst the Commissioners, as the Commissioner responsible for Competition Policy, Joaquin Almunia refused to comment on that point in a speech he gave on the decision, simply stating "What I can say is that we didn't vote".

Learn more about Mayer Brown's Antitrust & Competition

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2012. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.