Deutsche Boerse, NYSE deal wins U.S. approval

WASHINGTON Fri Dec 23, 2011 9:56am EST

A U.S. flag flies outside the entrance to the New York Stock Exchange in New York, July 7, 2011. REUTERS/Brendan McDermid

A U.S. flag flies outside the entrance to the New York Stock Exchange in New York, July 7, 2011.

Credit: Reuters/Brendan McDermid

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WASHINGTON (Reuters) - Deutsche Boerse (DB1Gn.DE) won U.S. antitrust approval to buy NYSE Euronext NYX.N in a $9 billion deal to create the world's No. 1 exchange operator, but the transaction still faces serious regulatory headwinds in Europe.

The Justice Department said on Thursday that the deal, which was announced in February, won U.S. approval on condition that a Deutsche Boerse subsidiary, the International Securities Exchange, divest its 31.5 percent interest in Direct Edge.

There have been few critics of the deal in the United States, despite the NYSE's symbolism as a bastion of American capitalism. The exchange was founded in 1792 when share trading began on a block now designated as Wall Street.

Deutsche Boerse and NYSE must also continue to provide some services, under the Justice Department approval, to Direct Edge, the fourth-largest U.S. stock exchange operator, behind NYSE Euronext, Nasdaq OMX (NDAQ.O) and BATS Exchange.

Direct Edge is run by a consortium that includes hedge fund Citadel and investment bank Goldman Sachs Group Inc (GS.N).

"We are very pleased to have received the approval of the DOJ, an important milestone on our path to completing our compelling Trans-Atlantic combination," Duncan Niederauer, chief executive of NYSE Euronext, said in an emailed statement.

NYSE Euronext shareholders have already approved the deal.

Richard Repetto, an analyst at Sandler O'Neil, called the U.S. approval "irrelevant."

"The big issue is over in Europe, and whether the European competition commission is going to approve the deal. They expected this. They knew they would likely have to divest the ownership in Direct Edge," he said.

Potential buyers of the stake include BATS, he said. " I don't know whether they'd allow Nasdaq to own it because there'd be a lot of concentration again," he added.

ALL EYES ACROSS THE ATLANTIC

In Europe, there have been weeks of negotiations with antitrust regulators, in which staff made clear their reservations about approving a combination of Deutsche Boerse's Eurex and NYSE Euronext's Liffe on concerns that the merged entity would have a monopoly over European listed derivatives trading.

Both Deutsche Boerse and NYSE Euronext have said they would not pursue the merger if they were asked to divest either Eurex or Liffe. A formal decision by the European Commission is not expected until January or early February.

In a bid to soothe regulatory concerns, Deutsche Boerse and NYSE Euronext have offered to cap fees on trading in their European derivatives contracts for three years, and to sell the entire single-stock equity derivatives business of NYSE Euronext's Liffe unit.

The EU Commission has said it would make a decision on the deal by February 9.

In Germany, Deutsche Boerse's home regulator is insisting on concessions to win European approval, potentially further complicating the path to completing the deal.

(Reporting By Diane Bartz; Additional reporting by Ann Saphir in Chicago; Editing by Gerald E. McCormick and Tim Dobbyn)

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