NYSE Euronext chose its deal with Deutsche Boerse AG over a higher, rival takeover offer from Nasdaq OMX Group and IntercontinentalExchange Inc, dealing the latest blow in what could be a drawn-out bidding process.

NYSE Euronext's directors found the $11.3 billion bid from Nasdaq and ICE strategically unattractive, with unacceptable execution risk, while the company's CEO Duncan Niederauer dismissed the offer as hollow and undefined.

It's hard to call it an offer because it's a loosely worded proposal that was, in our minds, an empty vessel, the chief executive said in an interview.

We had a strategy. The combination with Deutsche Boerse is consistent with that strategy. A dismantling of the company is not. End of story, added Niederauer, who would take the reins of a combined Deutsche Boerse-NYSE Euronext.

The parent of the New York Stock Exchange said the friendly, $10.2 billion deal with Germany's Deutsche Boerse announced in February was in shareholders' long-term interest, and significantly more likely to be completed. A merger would create the world's biggest exchange operator.

The formal rejection comes nine days after Nasdaq and ICE unveiled their plan, arguing it would strengthen the United States' hand as the world's bourses scramble to band together to fend off smaller rivals and find new profits.

It is unclear how Nasdaq and ICE will respond to the rejection, and whether they might submit a new bid or take their earlier offer directly to NYSE Euronext shareholders.

Representatives of Nasdaq and ICE did not immediately return calls and emails seeking comment.

Their bid called for Nasdaq to buy stock exchanges in New York, Amsterdam, Brussels, Lisbon and Paris, as well as U.S. options platforms and technology, while Atlanta-based ICE would buy NYSE Euronext's London-based Liffe platform and other derivative businesses.

Breaking up NYSE Euronext, burdening the pieces with high levels of debt, and destroying its invaluable human capital, would be a strategic mistake in terms of where the global markets are going, and is clearly not in the best interests of our shareholders, NYSE Euronext Chairman Jan-Michiel Hessels said in a statement.

LAUNDRY LIST

NYSE Euronext directors were concerned that Nasdaq and ICE had failed to line up committed bank financing for their bid, and that a takeover could saddle the combined entities with too much debt, a person familiar with the board's thinking said.

Directors also worried that a Nasdaq-NYSE merger would face serious antitrust problems, and could cost too many jobs in New York City, the person added. The person requested anonymity because of a lack of authority to speak for NYSE Euronext.

In announcing their cash-and-stock bid on April 1, Nasdaq and ICE had valued NYSE Euronext at $42.50 per share, 12 percent above Deutsche Boerse's offer.

In a separate statement, Deutsche Boerse said the merger remains on track to close by the end of the year.

Niederauer said Deutsche Boerse's CEO Reto Francioni, who would be chairman of the combined entity, is set to visit New York this week, and that the companies would attempt to outline more clearly the benefits of their tie-up plan.

Niederauer, a fierce rival of Nasdaq counterpart Robert Greifeld, tamped down speculation that a bidding war could ensue, arguing Deutsche Boerse did not technically bid for NYSE Euronext. It's not clear to me that it will escalate because I don't know what would escalate from here, he said.

ANTITRUST ISSUES

Both proposed deals are certain to attract antitrust scrutiny, which has also emerged as a hurdle for other potential exchange mergers.

On Friday, Singapore Exchange Ltd ended a takeover bid for exchange operator ASX Ltd after Australia's government rejected that offer.

An NYSE Euronext merger with Deutsche Boerse would likely draw regulatory scrutiny over the combined companies' expected dominance in European derivatives trading and clearing.

Similarly, merging Nasdaq with the NYSE could prompt U.S. antitrust issues, given that the largest U.S. stock exchanges would have a virtual monopoly on listings and dominance in trading U.S. cash equities and options.

Greifeld, Nasdaq's CEO, has called any potential antitrust issues manageable.

In Friday trading on U.S. markets, NYSE Euronext shares closed at $38.70, Nasdaq OMX at $28.45 and ICE at $120.55.

(Additional reporting by Paritosh Bansal in New York and Harro ten Wolde in Frankfurt; Editing by Gary Crosse, Gunna Dickson and Dale Hudson)