It’s official. The New York Stock Exchange has been sold to, in one CNBC anchor’s words, ‘a bunch of foreigners’. The iconic trading floor of the NYSE was tense this morning as CNBC’s Mark Haines’ grilled CEO Duncan Niederauer on the just announced merger of Deutsche Börse and the NYSE, a deal resulting in the creation of the world’s largest share- and derivatives-trading platform.
According to the Wall Street Journal,
Under the terms of the deal, Deutsche Börse shareholders will own 60% of the newly merged company, with NYSE shareholders controlling 40%. Each Deutsche Börse share will be exchanged for one share of the new company’s stock, while each share of NYSE Euronext will be swapped for 0.47 share of the new company stock.
The announcement was not a surprise, as talks surrounding a possible merger have been floating around for years, further indicating global consolidation of the exchange industry. Those in support of the deal have recognized the NYSE’s strategy to increase its scale of trading by merging with the Frankfurt based exchange. In today’s global environment, Niederauer argues:
‘It isn’t a sale, we’re trading from strength…It gives us opportunities to create our own destiny going forward… If you think about it, what I’ve said for two years is exchanges should be competing across the value chain.’
Let’s be clear– this is a German acquisition of a US company. The Board of Directors is split up 60/40 with respect to ownership, which equates to 10/7 seats respectively. That puts Deutsche Börse shareholders at a majority. Something of interest: Niederauer overtly ignores Haines’ inquiry on who initiated dialogue.
Those in support of the merger will argue that there are a number of American institutional investors that have a stake in the German company, thus are already represented in the majority. After all, the combined shareholder base is 55 percent US. For example, BlackRock Asset Management Deutschland AG, a subsidiary of New York global investment management giant BlackRock, holds around 5% in Deutsche Börse. So we’re covered, right? Wrong. This sort of logic is useless for those that realize that a) BlackRock is the largest money manager in the world, their interests are not solely pro-US based and b) that doesn’t make any difference in the boardroom when 10 are appointed by Deutsche Börse. This merger gives ultimate control to a German company.
The real story seems to be the anticipated name of this trading powerhouse. The branding has become more political than anything else– and this is about branding. Unable to disclose an official name, Niederauer did state this morning that the NYSE is “a fantastic brand”.
According to the Wall Street Journal,
The companies didn’t provide a name for the new German-U.S. exchange company amid concerns from politicians and regulators on both sides of the Atlantic, but said they expect to register a newly formed Netherlands-based holding company, Alpha Beta Netherlands Holding NV. Joint headquarters will be located in New York City and Eschborn, near Frankfurt.
How is Washington going to respond? Initial sentiments regarding the merger have been mixed.
According to CNN,
Last week, former House Speaker Newt Gingrich said the possibility of the NYSE being majority owned by a foreign corporation was a ‘fundamental blow’ to the United States. But other political figures, including New York City Mayor Michael Bloomberg and Democratic Senator Chuck Schumer, have been more upbeat.
Today, the Senator from the great state of New York was less jubilant.
‘I’m withholding judgment to see what they do with the name…The name will be indicative.’
According to Donald Trump,
‘I think it’s ridiculous that this country would allow Germany to buy our New York Stock Exchange. It’s another black eye for the United States- victory for Germany, not the United States.’
I wonder how many German flags will sprout on Wall Street in the coming days?