NEW YORK (
) - The U.S. Department of Justice has approved a $9 billion merger between
contingent on divestitures, however the tie-up between two of the largest exchanges in the world is still subject to a tenuous
For the merger to be fully approved by the DoJ, Deutsche Boerse will need to divest its 31.5% stake in
, the fourth largest stock exchange operator in the U.S. The DoJ ruling is positive for the merger, after previous NYSE tie-ups failed - however, an approval from the European Union is still up in the air. December reports by
signal that European regulators aren't impressed by divestiture proposals.
"Without the divestiture and other restrictions obtained by the Justice Department, a combined NYSE and Deutsche Boerse entity could influence the actions of Direct Edge, and thereby lessen the zeal of an aggressive and innovative exchange competitor," said Sharis A. Pozen, Acting Assistant Attorney General in charge of the DoJ's Antitrust Division in a press statement.
Without Direct Edge, the DoJ is satisfied that the combined exchanges wouldn't harm U.S. stock and derivative trading competition. "The remedy ensures that participants in the markets for U.S. equities exchange products and services will continue to receive the full benefits of robust competition in the form of competitive prices and increased innovation," said Pozen of the divestiture plan.
Nevertheless, the European Commission is giving the deal a much tougher second look, as a result of a larger impact in European trading. European antitrust authorities currently are looking whether the merger will create a duopoly in the European derivatives trading and clearing, according to earlier reports.
NYSE Euronext shares turned from losses to a gain for the day on news of the approval. Shares sit at $26.22 a share in afternoon trading, well below the $36.09 a share price that Deutsche Boerse offered -- signaling continued investor uncertainty over the deal.
The combination of the two companies would create Europe's largest equity and derivatives exchange.
The merger -- announced in February -- was subject to a second review by the European Union in August because it was seen to lead to increasing concentration in derivatives trading and clearing. Concerns about the merger by regulatory authorities hinge on whether competitors would be able to access clearinghouses to process derivatives trades that would come as a result of the merger.
Currently, NYSE Euronext owns derivatives trading business NYSE Liffe and Deutsche Boerse is owner of Eurex, a similar platform. Both provide for trading of derivatives based on interest rates, bonds, equities, indices, commodities and swaps, as well as clearing functions. It's still unclear whether commitments to allow competitors to access the clearing and trading businesses will appease the European Commission.
In November NYSE and Deutsche Boerse said they will open up their combined derivatives businesses to rivals and divest other units in order to preempt a potentially unfavorable ruling. They later committed to further divestitures in December. Separately,
reports that the companies may divest NYSE's Liffe single-stock derivatives business, while licensing Eurex to a third party.
The $9 billion deal between Deutsche Boerse and the leading U.S. stock exchange isn't the only exchanges deal that's come under regulatory scrutiny.
Earlier in the year,
Nasdax OMX Group
walked away from a similar merger because of a potential antitrust lawsuit from the U.S. Department of Justice.
The European Union is expected to provide a final decision on whether to approve or block the deal by the end of the year or early 2012.
-- Written by Antoine Gara in New York