NYSE Moves On While Deutsche Boerse Stands Ground - TheStreet

P/>NEW YORK (TheStreet) -- Even though NYSE Euronext (NYX) is moving on from its $7.4 billion scuttled merger with Deutsche Boerse, the European exchange will continue to contest an antitrust ruling blocking the deal that it called, "a black day for Europe and for its future competitiveness on global financial markets."

On Thursday NYSE Euronext said that it won't join its former partner in contesting the ruling. "While we continue to believe that the European Commission decision was based on an incorrect determination of the relevant market definition, we do not believe that the interests of our shareholders and our company would be served by undertaking a protracted appeal," NYSE Euronext said in a statement.

The proposed deal would have created the largest stock and derivatives exchange in Europe and one of the largest in the world, further tying NYSE Euronext's fate to the struggling region, while providing Deutsche Boerse entry to now rebounding U.S. markets.

While NYSE Euronext has moved on from the deal, Deutsche Boerse said earlier in March that it will contest a ruling by the

European Commission

that the merger would make some markets too concentrated.

The NYSE is moving ahead with plans to return $550 million to shareholders as it tries to continue growing earnings per share and operating profit margins. While NYSE investors reacted strongly to the deal breakup and capital return program in February, pushing shares over $30, Deutsche Boerse seems to be in far worse spirits on the deal breakup.

European officials rejected the merger, calling it a "near-monopoly" in European exchange-traded derivatives.

The deal would have concentrated 90% of European exchange-traded derivatives markets and just under a third of equities trading under one operator. Both companies made attempts to quell competition concerns by opening the businesses to rivals and divesting some pieces; however in its rejection, European Commission called for the divestiture of either NYSE Euronext's Liffe platform or Deutsche Borse's Eurex business, two keys to the deal.

NYSE Euronext shareholders and analysts may cheer the decision to walk away, after the company announced a capital return program could grow to $1 billion. Meanwhile, the move may allow the company to consolidate its European exposure, instead of expanding it.

"Volume in NYX's four transaction businesses are all down

year-over-year, and we believe the European businesses in particular could continue to experience headwinds," wrote KBW analyst Niamh Alexander of the company's fourth quarter earnings in February. Alexander rates shares a "market perform" with a $30 price target.


We continue to view the standalone business as attractive at current levels... We also believe some investors prefer the standalone case as it keeps exposure to a challenging macro environment in Europe in check," wrote UBS analyst Alex Kramm in a February note. Overall, NYXE Euronext warrants a $31.73 a share price target, according to consensus estimates compiled by


, with 10 "buy" and "hold" ratings, respectively and one "sell" rating.

Deutsche Boerse's contest with the EC's market concentration analysis may help the Frankfurt-based exchange pave the way for future deals. Both NYSE Euronext and Deutsche Boerse argued that the EC's view of derivative markets was too narrow and didn't include over-the-counter products.

A contest of the ruling could also help Deutsche Boerse avoid shareholder lawsuits on the merger and a some deal-related costs, which swelled to $108.6 million in the company's fourth quarter. In February, Deutsche Boerse boosted its dividend and launched a roughly $265 million share buyback program.

In December, the U.S. Department of Justice approved the merger, contingent on divestiture of Deutsche Boerse's 31.5% stake in

Direct Edge

, the fourth largest stock exchange operator in the United States.

For exchange operators looking to consolidate, the deal blockage caps a miserable few years. Regulators have canceled as much as $37 billion in exchange mergers since October 2010, according to


data. Those deals include a DoJ rejection of a competing $11.3 billion bid by

Nasdax OMX Group




(ICE) - Get Report

for NYSE Euronext and a tie up between the Australia's flagship


and the

Singapore Exchange


For more on exchanges M&A, see why investors should expect

small deals


-- Written by Antoine Gara in New York