Deutsche Boerse and NYSE Euronext have an agreement in principle on broad outlines of a merger, but the exchanges are set to side-step thorny political issues when their boards vote on Tuesday, three sources familiar with the plan said.
As the two hammered out a framework deal which focuses on functions and personalities, the merger frenzy that erupted last week heated up with Brazil's BM&FBovespa saying it was eyeing its own prospects and with a media report that CME Group Inc could jump into the fray.
NYSE Euronext's general counsel, chief operating officer and global head of technology are set to retain their positions in the combined group, two people familiar with the plan told Reuters on Monday.
The companies had previously announced that NYSE Euronext head Duncan Niederauer would head the combined company, while Deutsche Boerse Chief Executive Reto Francioni would be chairman.
There is an agreement in principle on the broad outlines of the deal, a European source familiar with the deal said.
But other people familiar with the situation said some issues -- such as the name, job cuts in technology, and where other promised cost savings would come -- still need to be worked out in detail.
Negotiations over a name, and where to locate various operations across the two continents, highlight some of the difficulties in bringing together companies that are both operationally complicated and symbols of national pride.
Past merger attempts have failed over such issues.
The biggest question mark in general is obviously the European political and regulatory landscape coming out of this, one source said.
The details emerged as Fox Business Network reported that CME Group, currently the world's top derivatives exchange group, may make a hostile bid for NYSE Euronext, citing bankers.
A spokesman for Chicago-based CME declined to comment. CME officials have been guiding investors away from expectations that the company would jump in on the global merger frenzy.
BM&FBovespa, the world's fourth-largest financial exchange operator, is closely watching for tie-up opportunities, Chief Executive Edemir Pinto told Reuters.
Pinto said BM&FBovespa is interested in China and India as markets where it could pursue expansion because of their growth potential and similarities in terms of products. He added that a partnership with CME also has room to grow, but did not elaborate.
Last week, the Frankfurt- and New York-based exchange operators revealed the first details of a merger plan that would give Deutsche Boerse shareholders about a 60 percent stake.
That announcement came within hours of another blockbuster deal in the exchanges sector: London Stock Exchange agreed to buy Canada's TMX Group .
On Monday, Industry Minister Tony Clement said Canada will review the LSE bid under the Investment Canada Act.
Clement has 45 days from the moment the review begins to make a decision on whether the deal is of net benefit to Canada. He said he expected that period to begin in one or two weeks.
He can extend that period by a further 30 days, and lawyers have said that scenario is likely. The four Canadian provinces where TMX has operations -- British Columbia, Alberta, Ontario and Quebec -- are also reviewing the deal.
A deal is set to be presented to the boards of NYSE Euronext and to the supervisory board of Deutsche Boerse on Tuesday, people familiar with the matter said. Deutsche Boerse will also publish fourth-quarter results on Tuesday.
According to the sources, NYSE Euronext Deputy CEO Dominique Cerutti would be head of global IT at the combined company and would be based in Paris; NYSE Euronext's Lawrence Liebowitz would stay on as chief operating officer and head of global listings and cash markets and would be based in New York; NYSE Euronext General Counsel John Halvey would also retain his post.
Andreas Preuss, CEO of Deutsche Boerse's Eurex derivatives unit, would likely be deputy CEO of the merged companies and would be responsible for derivatives operations, one of the sources said.
A formal deal announcement could come by mid-morning (Eastern Time) on Tuesday, two sources said.
In Germany, the deal is being sold as a German takeover of the NYSE or as a merger of equals. Any suggestion that the NYSE management team will be in control counters that public stance and could create an obstacle to the deal getting done.
Deutsche Boerse risks ceding control to NYSE Euronext , a supervisory board member at the German exchange said.
Just like in the Euronext deal, it will be a matter of time before the Americans take control. We should be wary of this. It won't be possible to undo the deal once it is signed, Johannes Witt, a labor representative, said.
Remarks made on Sunday by U.S. Senator Charles Schumer that a tie-up would give NYSE managerial control served as a warning, he added.
Under Germany's system of corporate governance, companies operate under a two-tier board structure, with a management board, consisting of executives, and a supervisory board which is half composed of labor representatives.
Labor representatives such as Witt play a powerful role in German supervisory boards, which control management boards.
The financial regulator at the German regional state of Hesse, home to Deutsche Boerse, reiterated that it would seek to preserve the interests of Frankfurt as a financial center, when reviewing the plans.
The regulator, part of the state's financial ministry, bestows the license to operate a stock exchange in the state of Hesse and must approve any merger agreement.
A spokesman for the German Finance Ministry said the role of the national government in the merger would be limited.
France has also voiced worries. Economy Minister Christine Lagarde last week said she was concerned about the impact on the security and stability of financial markets.
She wants to see Paris, formerly home of Euronext, play a key role in the combined group.
(Additional reporting by Noah Barkin and Brian Rohan in Berlin, and Paritosh Bansal in New York; Writing by Edward Taylor; Editing by Dan Lalor, Alexander Smith and Bernard Orr)