A Grievous Set-Back
PARIS/FRANKFURT AM MAIN/BERLIN (Own Report) - Once again the German Stock Exchange is facing the prospect of failure in its attempt at expansion and looks like losing its place in global competition. In spite of massive pressure from Berlin, the Exchange has not succeeded in its bid to take over Euronext, the Stock Exchange which covers four countries. Instead it appears that there may be a merger of Euronext with its transatlantic competitor, The New York Stock Exchange (NYSE). Amongst financial experts it is thought that, in the present reordering of the Stock Exchange scene, the German Exchange may remain isolated and sink to the status of a "European regional market". Economic circles are demanding that, if the Euronext takeover finally founders, the German Stock Exchange must look for alternative possibilities for expansion in southern, northern and eastern Europe. The German press claims that "nationalist small-mindedness" caused the hostility to the previously successful bid because of fears about German domination of French companies.
In the last two years, two takeover bids by the Frankfurt Exchange were defeated. In March 2004, the Swiss Exchange SWX rejected plans for a merger.[1] In March 2005 the German Exchange withdrew its offer for the London Stock Exchange, following pressure from shareholders opposed to the deal.[2] Against this background the German government used its maximum influence to support the attempted bid for Euronext. Federal Finance Minister Peter Druck publicly declared his support for the plan and that the head office of the amalgamated exchange must remain in Frankfurt.[3] At the outset of negotiations, there were loud complaints that the Germans did not really want a merger but a disguised takeover.
More Attractive
To ward off the bid by the German Exchange, which was characterised as "an imperialistic takeover" [4], large French companies and banks successfully combined and increased their shareholdings in Euronext [5]. The majority of shareholders in Euronext, the mainly French exchange, which has trading floors in Paris, Amsterdam, Brussels and Lisbon as well as the London International Financial Futures Exchange (LIFFE), rejected the merger offer from Frankfurt. Euronext's board of directors had already advised against the German offer and favoured a competing offer from the New York Stock Exchange (NYSE), declaring it to be "attractive". NYSE is proposing an equal partnership with Euronext in which the shareholders of both firms will each have 50% of the shares in the joint venture. Admittedly the Frankfurt Exchange had offered a higher price (around 8.6 billion euros as against 8 billion) and, in spite of some concessions, insisted that the German offer should have priority because of the higher market value it placed on Euronext.[6]
A Bitter Disappointment
Some observers now expect a take-over battle because the final decision will not be made until an extraordinary general meeting of Euronext shareholders in the autumn. Fears are growing in German financial circles that they could be left without partner and end up as a loser in the new order of European stock exchanges. An amalgamation of NYSE and Euronext would create the largest global stock exchange with a value of around 20 billion euros. The failure of the German bid could put the Frankfurt exchange firmly into the second class. Opinion is that "then we would have two giants against us and would become a regional European exchange".[7] A first "giant" was formed by the entry of the US technology exchange NASDAQ into the London Stock Exchange (LSE). The battle for Euronext is scarecely regarded with optimism now: "The game is up, we Germans have lost and should withdraw from bidding" declared the economic press.[8] "The truth is bitter but we must accept it ungrudgingly; the four country Euronext Exchange and the London Stock Exchange are more or less securely in American hands."[9]
Small Mindedness
The decision in Paris to oppose the Frankfurt takeover has provoked an aggrieved reaction in the German press. The daily newspaper, Die Welt, says that it is paradoxical "that the French have fled into the arms of the hated Americans to avoid the domination of Frankfurt on the European continent" [10] The Frankfurter Allgemeine Zeitung accuses the Euronext management of closing ranks in Paris because it had built the situation up into a "horror scenario" that a great Franco-German undertaking should be run from Germany. That was disappointing "not only from a German viewpoint but also in a European perspective" the paper declared and said that the failure of willingness to subordinate their interests was an indication that "small-minded nationalism" had taken over in France.[11]
An Anxious Question
It is believed that the German Stock Exchange must look forward to "an uncomfortable future". In spite of attempting various mergers, it could, in the end, be the only one of the three great European Exchanges without a partner. This "grievous set-back" applies to Germany itself as a financial centre and to the German Stock Exchange Company, according to its market capitalisation the mightiest exchange in Europe. The Exchange could become "isolated and strategically weakened".[12] The Germans believe themselves to be at a point of decision. "Premiership or relegation is the fearful question".[13]
Forwards
The economic press demands that the search for partners must go on - in southern, eastern and northern Europe. The Frankfurt Exchange must now at least try to get together with some of its smaller European competitors - perhaps with the Italians, the Swiss, the Spaniards or the Scandinavians. Alternatively the American Financial Exchange CME could come into question: "The old aim of American dominance over all Western finance markets makes a valid European alternative more necessary than ever".[14]
[1] see also Uneinsichtig
[2] see also Befreiungsschlag and Machtkampf
[3] Berlin geht im Börsenstreit in die Offensive; Financial Times Deutschland 05.05.2006. Finanzminister Steinbrück unterstützt Deutsche Börse; Die Welt 16.05.2006
[4] New Yorks Börse greift nach Euronext; Frankfurter Allgemeine Zeitung 22.05.2006
[5] see also Abwehrschlacht
[6] Acht Milliarden Euro für Euronext; Frankfurter Allgemeine Zeitun 23.05.2006. Deutsche Börse überbietet NYSE; Tagesspiegel 23.05.2006
[7] Deutsche Börse gerät in die Defensive; Handelsblatt 22.05.2006
[8] Deutscher Börse droht der Klassenabstieg; Handelsblatt 23.05.2006
[9] Au revoir Euronext; Handelsblatt 23.05.2006
[10] Kein Untergang; Die Welt 23.05.2006
[11] Ein Stuhl zu wenig; Frankfurter Allgemeine Zeitung 22.05.2006
[12] Deutscher Börse droht der Klassenabstieg; Handelsblatt 23.05.2006
[13] Deutsche Börse gerät in die Defensive; Handelsblatt 22.05.2006
[14] Au revoir Euronext; Handelsblatt 23.05.2006
