Deutsche Boerse and NYSE Euronext announced the creation of the world's largest exchange operator on Tuesday, dodging political issues that could threaten completion of a deal.
A key compromise is an agreement to headquarter the combined group in both New York and Frankfurt. 60 percent of the group will be owned by Deutsche Boerse shareholders and the remainder by NYSE investors. However there was no name given to the proposed group.
The new company will have a single tier board, with 10 seats out of 17 going to Deutsche Boerse but with NYSE Euronext taking the all-important chief executive post.
Under the terms of the deal NYSE Euronext stock will be exchanged for 0.47 shares in the new company, while Deutsche Boerse shares will be swapped on a one-for-one basis, the exchanges said in a statement on Tuesday.
As previously trailed, NYSE head Duncan Niederauer will be chief executive and Reto Francioni of Deutsche Boerse will take on the role of chairman.
The exchanges face intense competition in their traditional stock-trading business from younger trading venues geared toward today's increasingly dominant high-speed electronic traders.
NYSE Euronext and others have responded by investing heavily in technology and expanding into more profitable derivatives trading.
The merger deal creates an unprecedented exchange powerhouse with more than $20 trillion in annual trading volume and operations in Germany, France, Britain, Amsterdam, Portugal, Belgium, and the United States.
The pair promised the takeover would cut combined costs by 300 million euros ($400 million) a year. The companies' combined market capitalization is about $26 billion.
Together, Deutsche Boerse's Eurex unit and NYSE Euronext's London-based Liffe unit would dominate European exchange-based futures trading, with more than 90 percent overall, raising antitrust questions among market regulators.
After a few years off that included the financial crisis and the beginning of a global regulatory revamp, the world's exchange operators are back in the takeover game.
Singapore Exchange bid for Australia's ASX late last year, and, last week, London Stock Exchange announced it would acquire Canada's TMX Group -- hours before Deutsche Boerse and NYSE Euronext said they were in advanced talks.
Local concerns over the wave of consolidation sweeping the industry surfaced in Asia on Tuesday. Singapore Exchange tweaked its $7.9 billion bid for rival ASX to allow more Australian directors onto a combined board in an attempt to win over skeptical Australian politicians.
Nationalism has long been one of the biggest hurdles to exchange mergers. The marketplaces are often symbols of national pride and important to attracting business and capital.
Regulators are paying close attention to the latest round of deals, including the London Stock Exchange's bid to take over Toronto Stock Exchange operator TMX Group.
Exchange users have also raised red flags over the proposed deals, which they fear will limit competition.
Euronext and Deutsche Boerse are still screwing us on fees for clearing, the closing auctions and small and mid-cap trading -- the areas where they still have virtual monopolies, said the head of markets at a large European bank, who declined to be named. A merger is concerning because together they will be more powerful and better placed to protect these monopolies.
The LSE deal with TMX has already run into foreign ownership concerns in Canada.
But despite rumblings about Middle Eastern ownership in Ontario, LSE shareholder Borse Dubai, which is owned by the ruler of the Gulf Arab emirate, has not been asked to trim its 20 percent stake, a source familiar with the matter said.
Singapore Exchange's willingness to give ground and award an equal number of board seats to Australians and Singaporeans in the combined entity shows how local sensibilities are being overcome as the pressure to consolidate rises. The value of SGX's offer has not been changed under the new proposal.
All the resistance ... has been political. The steps taken today should address some of those political issues, said Mark Nathan, portfolio manager at Arnhem Investments.
(Additional reporting by Philipp Halstrick, Paritosh Bansal, Adrian Bathgate, Saeed Azhar, Luke Jeffs and Narayanan Somasundaram; Writing by Alexander Smith; Editing by Jane Merriman and Chris Wickham)