Stock exchange waltz sees NYSE offer $10bn for the hand of Euronext

The courtship ritual has seen all major exchanges display their plumages in the past 18 months

In the six-year courtship dance between the world's major stock exchanges, the music is at last beginning to slow and potential partners are poised to take each other by the hand.

Yesterday, the New York Stock Exchange unveiled the terms of a proposed marriage with the European exchanges operator Euronext, an alliance looked upon favourably by both parties.

Meanwhile Nasdaq, another burly American hopeful of wooing a European beau, has built a 25.1 per cent stake in the London Stock Exchange that makes any attempt at an excuse-me far from straightforward.

Germany's Deutsche Börse, the other eligible bachelor, looks increasingly alone and unloved by those whose affections it sought.

An inexorable drive towards consolidation of the world's biggest stock exchanges has been fuelled by the promise of hefty cost savings and by a need for scale.

Andrew Mitchell, an exchanges analyst, explained: "An exchange is effectively a set of computers running a trading platform, and the elimination of two sets of IT costs can deliver substantial savings.

"Exchanges are also really dependent on having as many people trading on them as possible. That brings liquidity, and you effectively enter a virtuous circle."

Some 18 months after the Germans began the latest round of merger fever, John Thain, the chief executive of the NYSE, yesterday made his play to land Euronext, the operator of the Amsterdam, Paris and Lisbon exchanges and London's Liffe derivatives exchange.

NYSE's cash-and-shares offer, worth around €7.8bn (£5.3bn), is understood to be the strongly preferred option of Euronext, led by Jean-Francois Theodore.

Such a marriage would create the first transatlantic exchange, capable of offering shares, options and futures trading. It would command a market value of $21bn (£11bn), with listings in Europe and America.

The headquarters would be in New York, with Mr Thain assuming the role of chief executive. Mr Theodore would become his deputy, running the European operation, with Jan-Michiel Hessels, Euronext's chairman, filling the same position within the combined group. The combined board of directors would include nine from Euronext.

"In terms of logic, this does give New York the geographic and product diversification it has been seeking," Mr Mitchell said. "In addition, the synergies they are targeting are somewhat higher than we would have pencilled in."

NYSE expects cost savings of $275m from such a merger, $250m of which will come from combining technology.

Under the terms of the proposal, investors will be offered 0.98 NYSE shares and $21.32 in cash for each Euronext share they hold. That is around €3 less per Euronext share than their €74 close on Friday. They have surged 70 per cent over the past year on hopes of industry consolidation.

"The market was a little underwhelmed by the level of the offer," Mr Mitchell said. "However, the indicated terms of the Deutsche Börse proposal looked shy of New York's which appears to the best on the table. That looks the way things are heading."

Euronext's board spent yesterday weighing both the NYSE's offer and Friday's all-share proposal from Deutsche Börse, and is expected to put its recommendation before shareholders at a meeting today.

Despite pressure from some Euronext shareholders for a tie-up with Germany, Deutsche Börse's proposal looks unlikely to find favour.

Light on details, the German recipe was short on concessions to issues that had stymied earlier talks.

It continued to insist that a combined group be housed in Frankfurt and run after a time by Reto Francioni, Deutsche Börse's chief executive. Mr Theodore would be given a hand on the tiller only for an unspecified "transition period" before he was shifted to the combined company's supervisory board where the chairman would be a Deutsche nominee.

Nor did Deutsche ease concerns over its so-called "vertical silo" structure - providing not only the means to trade, but also to clear and settle transactions afterwards - that some Euronext customers fear could lead to higher charges.

No mention was made of price but using a formula disclosed yesterday by Euronext, the German offer would value it at around €7.3bn, some €300,000 below last night's closing price.

The Germans were similarly elusive about the cost savings they expected to realise from a merger, saying only that these would be greater than had been suggested in any earlier exchange takeover talks. That is thought to be around $150m.

NYSE's firm offer may go a fair way towards defusing what otherwise threatened to be a fractious meeting of Euronext shareholders today.

Mr Theodore will place both offers to them and call for a motion to be voted down to approve in principle a merger with Deutsche Börse, forced on to the agenda by shareholders with ties to hedge funds.

Last week, the New York-based hedge fund Atticus Capital, which owns a stake of around 9 per cent in Euronext, vowed to unseat senior managers there unless a deal is done.

Atticus formed part of the shareholder rebellion that forced Deutsche Börse to withdraw a bid for the LSE last year and ultimately cost Werner Seifert, then the chief executive, his job.

Joining Atticus in that revolt was TCI, a London-based hedge fund and major Deutsche Börse shareholder. Like Atticus, TCI has also threatened to throw its weight behind a German merger with Euronext today. They, and Deutsche Börse, look set for disappointment.

A protracted courtship ritual has seen all major (and several minor) exchanges puff up their chests and display plumages over the past 18 months.

During that time, London has spurned four distinct approaches - from Euronext, Deutsche Börse, the Australian investment bank Macquarie and Nasdaq. The Nordic exchanges group, OM, has also made overtures towards the LSE.

A deal between NYSE and Euronext will place the LSE under enormous pressure to accept Nasdaq's hand. Italy's exchange had also been hopeful of a tie-up with Euronext, but now may look to the Germans.

The latter, experts suggested, could now cast their nets wider afield to find a transformational deal.

"People will be concerned that they are strategically isolated," Mr Mitchell said. "But while the other major European exchanges are busy tying up their deals, it may give the Germans an opportunity to look further afield, to a potential partner in Asia for example."

The music may be slowing but those exchanges left friendless for now might still find themselves new partners before the last dance is over.