Euronext's $10 billion tie-up with NYSE Group Inc. puts pressure on other exchanges to seek partnerships to catch up with what will be the world's largest financial marketplace, analysts said on Friday.
Under the deal -- which the companies presented as a merger of equals -- the NYSE will buy Euronext for about 7.8 billion euros ($9.96 billion) and create the first transatlantic stock exchange, with a market capitalization around $20 billion.
The tie-up could force Deutsche Boerse AG, a rival bidder for Euronext, to search for other ways of pleasing its shareholders.
I don't expect Deutsche Boerse to come back. In fact, I think it looks to be out on a bit of a limb, said Justin Bates, an analyst for Numis Corp. in London.
Euronext shares rose as much as 2.7 percent on Friday to an intraday high of 70.75 euros. The stock was up 1.2 percent at 69.75 euros by 1045 GMT.
The NYSE offer is worth 69.13 euros per Euronext share, based on NYSE's closing share price on Thursday.
Shares in Deutsche Boerse were down 1.4 percent at 105.07 euros, while the London Stock Exchange -- which has also been courted by exchanges from Europe to America to Australia -- was unchanged at 11.22 pounds.
Analysts said that, after the deal, the London and German exchanges were now in danger of looking lightweight next to the NYSE/Euronext combination.
GAME OF CHESS
The latest move in this global game of chess has left the London Stock Exchange and Deutsche Boerse with a strategic problem: Not to act could be dangerous for their futures, said Richard Hunter at Hargreaves Lansdown Stockbrokers.
Euronext Chief Executive Jean-Francois Theodore is to meet the head of Italy's stock exchange, Massimo Capuano, in Paris on Friday to discuss a possible alliance, the Milan bourse said.
Borsa Italiana has said it would start talks with Euronext on possible synergies between the two exchanges, describing the pan-European bourse as its first choice of partners.
Pressure has been building on stock exchanges globally to combine, in order to cut costs and speed up the execution of transactions.
Yet despite consolidation within Europe and the United States, there had not so far been a major deal linking exchanges on both continents.
The race kicked off earlier this year when Nasdaq Stock Market Inc., the second-biggest U.S. equities exchange, bid for the London Stock Exchange but was rebuffed.
Nasdaq has since built a stake of more than 25 percent in the LSE, but under British rules it cannot launch a takeover bid for six months.
The LSE announced on Friday plans to sell a benchmark-sized, sterling-dominated bond to refinance existing borrowings, but analysts said the world's oldest exchange might have to come up with something more dramatic.
PRESSURE TO MERGE
What worries the market is (LSE Chief Executive Clara) Furse's insistence that the LSE can go it alone against all market forces, when its arsenal is far from full with the right ammunition. The fact remains she cannot, said David Buik at Cantor Index.
The Euronext/NYSE deal will take at least six months to consummate, and who knows? The NYSE could buy NASDAQ's 25.1 percent stake in the LSE, which is heavily leveraged, he added.
Keefe, Bruyette & Woods analyst Michael Long said an eventual Nasdaq/LSE merger appeared likely, while West LB analyst Johannes Thormann said mid-sized European bourses in Italy, Switzerland and Spain might also be forced into mergers.
Termed a merger of equals by the pair, the new company will be called NYSE Euronext and will have U.S. headquarters in New York, international headquarters in Paris and Amsterdam and its derivatives business located in London. NYSE Chief Executive John Thain will be chief executive of the combined group
The NYSE and Euronext said that each of the NYSE Euronext markets would continue to be regulated in accordance with local requirements, with Euronext's European markets remaining under the watch of European regulators while the Securities and Exchange Commission would continue to regulate the U.S. markets.
Clients had been concerned that a U.S. bourse takeover could lead to more burdensome reporting requirements for European-listed firms after the Sarbanes-Oxley act ushered in new U.S. compliance rules seen as onerous and expensive.
HMG Finance fund manager Francois Garnier, who uses Euronext services in Paris, welcomed the NYSE deal, saying it could lead to an overall improved service for customers.
Both Euronext and the NYSE are due to present more details of their merger at a news conference in Paris at 1230 GMT.
(Additional reporting by Peter Starck and David Cullen)