NYSE Merger Snag; Ubiquity IPO: Deals to Watch

NEW YORK ( TheStreet) -- Reuters reported Tuesday that the European Commission will object to NYSE Euronext's ( NYX) merger with the Deutsche Boerse as early as this week. The deal valued NYSE Euronext at $36.09 a share and had received shareholder approval in July.

The New York-based exchange has fallen over 35% in the past three months as its merger with the Deutsche Boerse faced increasing scrutiny and trading volumes fell on global economic fears.

The $9.5 billion deal between Deutsche Boerse and the leading U.S. stock exchange announced in February may put one of the largest mergers announced this spring in jeopardy. In August, the U.S. Department of Justice filed an antitrust lawsuit against AT&T's ( T)proposed $39 billion merger with T-Mobile.

Reuters reported that, "The European Commission is expected to send a statement of objections to the parties this week," but did not comment on what the commission would object to. In August, the merger was subjected to increased scrutiny by the European Union because it was seen to lead to increasing concentration in derivatives trading and clearing, potentially harming competitiveness.

In a statement from August, EU Competition Commissioner Joaquin Almunia said, "The proposed merger would remove a strong competitor from the market and would give the merged company by far the leading position in derivatives trading in Europe."

The combination of the two companies would create world's largest equity and derivatives exchange. The NYSE's roots trace back to the 18th century, while stock markets under the Deutsche Boerse have a history that the company traces to the 16th century, according to its website.

Concerns about the merger by regulatory authorities seem to hinge on whether competitors would be able to access the clearinghouse to process derivatives trades that would come as a result of the merger. Clearing, a key piece of the 2010 Dodd Frank Act to reform derivative markets and lessen the risks that the credit of trading counterparts has to the wider financial system, is seen to be a new profit center for exchanges.

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.

Earlier in the year, Nasdax OMX Group ( NDAQ)and IntercontinentalExchange ( ICE) walked away from a similar merger because of a potential antitrust lawsuit from the U.S. Department of Justice.

While building a 'vertical silo' where trading and post-trade clearing could be affected under one roof was part of NYSE's strategy to merge with Deutsche Boerse, it was also struck in part to ward off the growing threat of high-frequency trading done off of traditional stock exchanges.

When the deal was announced in February NYSE Euronext Chief Executive Duncan Niederauer said, "The increasing globalization and interconnectedness of capital markets, and the rapidly growing presence of alternative trading venues that operate with less transparency and far fewer regulatory requirements, will position the new company as a true global player well placed to drive the long-term strength and competitiveness of transparent and regulated markets."

After learning of increasing scrutiny by European regulators this summer, Niederauer said on his second quarter analyst call that he still expected the merger to close by the end of 2011 and added "it's important to note that any negative impact on competition is not significant, given the global nature of derivative markets, the increasing competition between OTC and listed markets generally and in derivatives specifically, and the simple well-known fact that NYX and DB1 don't really compete against one another."

The European Commission has until mid-December to make a decision on whether to approve or block the merger.

The cancellation of the merger would be a hit to M&A markets, which showed a significant slowing in the third quarter. According to data released by Dealogic on Monday, global mergers and acquisition activity fell 19% in the third quarter, the poorest performance of the year after rising by more than 20% in each of the first two quarters of 2011.

Ubiquiti Networks ( UBTN) will file the first U.S. IPO since September 1st today when it lists on the Nasdaq. The company, which makes broadband wireless network infrastructure to support broadband voice, video and data communications needs in remote areas, is looking to raise roughly $200 million by selling 7 million shares at a range of $20-to-22 a share.

Ubiquity is the first company this fall to touch its feet in the IPO market since real estate investment trust American Realty Capital ( ARCP) sold just over 5.5 million shares for $12.50 a share.

Fearful of volatile stock markets and the low valuations investors are willing to pay for shares, companies pulled 221 offerings to go public in the first 9 months of the year according to data released by Dealogic on Monday, the highest number of withdrawn or postponed IPOs since 2008 when the global economy hung on the precipice.

Global IPO activity has totaled $142.5 billion so far in 2011, down 8% from last year's equivalent total. The third-quarter contribution of $27.6 billion was the worst since the second quarter of 2009 when the economy was just about to emerge from the worst recession since the Great Depression.

In its S-1 filing with the Securities and Exchanges Commission, Ubiquity reported reported revenue that has more than doubled each year ended June 30th from 2008 to 2010, growing from $22.4 million to $136.9 million over that time period. After reporting profitable years in 2008 and 2009, Ubiquity reported a loss of $6.9 million in 2010, or 19 cents a share as a result of a fivefold increase in operating expense. In 2011, it returned to profitability, reporting net profit of $11 million as a result of fall in operating expense and $130 million in overall revenue.

In its IPO filing the company said that its business model is geared toward providing wireless networks in rural, or remote areas. "Our products bridge the digital divide by fundamentally changing the economics of deploying high performance wireless networking solutions in underserved and underpenetrated markets globally. These markets include emerging markets and other areas where individual users and small and medium sized enterprises do not have access to the benefits of carrier class broadband networking," said the company in its filing.

According to its discussion of operations, the company sells high performance radios, antennas and management tools for wireless network communications and unlicensed RF spectrum.

The San Jose, California- based company was founded by its current Chief Executive Robert Pera in 2003. Pera, a former wireless engineer with Apple holds a B.S. and M.S. degrees from the University of California, San Diego. UBS ( UBS)and Raymond James ( RJF)acted as lead underwriters of the offering.

-- Written by Antoine Gara in New York