Swiss bourse unmoved by NYSE bid for Euronext

Keystone

As Euronext considers takeover bids, a stock market expert tells swissinfo why small operators such as Zurich may need to rethink their strategy of going it alone.

The Swiss stock exchange SWX repeated on Monday that it wouldn’t yield to takeover advances, a day before Euronext shareholders decide on bids from the New York Stock Exchange (NYSE) and Deutsche Börse.

Hilary Cook, director of investment strategy at Barclays Stockbrokers in London, says consolidation across Europe’s bourses is only a matter of time, and smaller operators will have trouble competing as stock markets go global.

Responding to news that the NYSE was bidding for Euronext, the SWX repeated that it had ruled out a merger with a big European bourse.

It added that it was open to cooperation agreements, and expected to clinch one on derivatives trading with Deutsche Börse by early next year.

swissinfo: What are the implications of a tie-up between the NYSE and Euronext?

Hilary Cook: There’s been no real consolidation of stock market operators yet, but certainly the NYSE seems determined to lead a globalisation of the stock market.

If it does beat Deutsche Börse to Euronext then I think we will see pressure on the others to get together as well because they’re going to look relatively small compared to the giant that would result from a combined NYSE/Euronext.

Both the SWX and the London Stock Exchange (LSE) can say that they think independence is fine, but certainly the London share price is telling us that it will agree to a bid, most likely from Nasdaq [the US electronic stock market].

swissinfo: Why does the size of a stock market operator matter? Is it not the location and the number of firms listed that are more important?

H.C.: There is one basic argument for the consolidation of stock markets: quite simply cost savings.

What we as users of stock exchanges want is a low-cost well-regulated market with a lot of liquidity [where investors can buy and sell shares quickly without significantly affecting the price]. And the bigger the exchange, the lower the cost and the better the liquidity.

swissinfo: So where does that leave the SWX?

H.C.: There will be continued opportunities to trade in smaller shares by individual exchanges. When we talk about the globalisation of stock markets, it’s very much geared to international companies.

The small exchanges specialising trading of small companies’ shares, with small liquidity – their independence might be perfectly possible – they don’t need to find themselves a big partner.

But the pressure is still going to be on for most of the smaller exchanges to find themselves a partner.

swissinfo: Why have stock market operators historically been so reluctant to consider mergers and takeovers? Is this an issue of national pride?

H.C.: No doubt there is an issue of national pride at stake here. Both London and Switzerland want to go on being at the forefront of financial centres.

The key is to make sure that whoever takes you over recognises that London and Zurich are key trading centres. Who actually owns you doesn’t matter. Here in Britain, it’s interesting to see how many companies are now owed by foreigners, including utilities, so what difference does it make with a stock exchange?

Also, who’s to say that ruling out bids is not just bluffing in the hope of getting a higher price? The LSE rebuffed offers at £6 (SFr13.70) and the shares are now £12 so you can say they were absolutely right to rebuff offers then.

swissinfo-interview: Jonas Hughes

Key facts

The SWX Swiss exchange is controlled by an association of 55 banks, all of which have equal voting rights.
It owns stakes in several other stock market operators, including virt-x and EXFEED (wholly SWX-owned), Eurex, the world’s largest derivatives market, and STOXX, Europe’s leading provider of securities market indices.
The SWX spurned a merger advance by Germany’s Deutsche Börse in 2004, and has repeatedly ruled out any others.

In brief

Euronext is Europe’s second biggest stock exchange, and runs the bourses of Paris, Amsterdam, Brussels and Lisbon, as well as the London International Financial Futures Exchange.

The NYSE cash-and-stock offer values Euronext at €8 billion, or roughly €71 per share; Deutsche’s bid is worth €90 per share. However, the New York bid would leave shareholders with nearly three times more cash in hand.

A merger would create a transatlantic giant with a market capitalisation of $21 billion (SFr25.5 billion), compared with SFr1.17 billion of the Swiss stock exchange and virt-x combined.

Euronext said on Monday that the NYSE bid was the “most attractive” option on the table, an option shareholders rallied to on Tuesday, rejecting Deutsche’s offer.