NYSE and Euronext seal $20bn merger

The New York Stock Exchange and Euronext, the pan-European exchange, agreed last night to create the world's first global stock market in a $20bn merger of equals.

The deal, to be announced in Europe and America this morning, in effect closes the door on a rival bid for Euronext from Deutsche Börse and will put increased pressure on the London Stock Exchange to agree a deal with the US exchange Nasdaq.

The combined exchange will be called NYSE Euronext and will handle $100bn worth of daily share trading. The companies listed on the two exchanges will have a total market capitalisation of $27 trillion.

Shareholders in the two exchanges will be offered shares in a new holding company. Although the merger places an equal value on the two exchanges, Euronext shareholders will also be entitled to take an element of cash. This is expected to result in the merged company being owned 58 per cent by NYSE investors and 42 per cent by Euronext.

The board of the two exchanges agreed the merger last night. Although the financial terms of the deal are broadly the same as those announced a fortnight ago by the NYSE, the corporate governance arrangements have been strengthened to prevent a de facto American takeover of the combined company.

The combined business will be chaired by Jan Michiel Hessels, the chairman of Euronext, while its chief executive will be John Thain of the NYSE. Jean Francois Theodore, the chief executive of Euronext, will become deputy chief executive of the merged company while Marshall Carter, chairman of the NYSE, will become deputy chairman. The executive committee of the new company will have even numbers of representatives from the two exchanges, while the board will have 11 NYSE nominees and nine from Euronext. However, any major corporate decisions will require a two-thirds majority.

The individual exchanges will also continue to be regulated by their national authorities to avoid regulatory creep into Europe from the US, where companies are bound by the much harsher and more prescriptive Sarbannes-Oxley rules.

Savings from the merger are estimated at $375m and will be achieved by cutting the number of trading systems from six to two and shrinking the 10 existing data centres down to four. A further $100m of revenue benefits are forecast from a new derivatives exchange the combined company plans to create using technology developed by Euronext's London-based futures exchange Liffe backed by the brand name of the NYSE.

The aim of the combined exchange is to attract listings from companies in the emerging markets of China, Russia and India that have so far been drawn either to London or the Nasdaq.

Deutsche Börse could still mount an attempt to break up the NYSE-Euronext deal but it would have to go hostile, alienating the Euronext management. Euronext had already been antagonised by Deutsche Börse's initial takeover proposal, which would have resulted in the combined company being run out of Frankfurt under German control.

Under the deal agreed last night with the NYSE, Euronext shareholders will be offered 21 euros in cash plus 0.98 of a share in the new company. NYSE shareholders will be offered straight shares.

Provided the deal is agreed by the two sets of shareholders, it will end more than two years of jockeying among the various exchanges of Europe and America to create the first transatlantic stock market.