On February 15 2011 the boards of NYSE Euronext and Deutsche Boerse announced their intentions to form a business combination. The combined group would be the world's largest exchanges operator by revenues and profit. Although the Deutsche Boerse shareholders would hold approximately 60% of the equity following consummation of the transaction, the proposed transaction can be regarded as a 'merger of equals', as it is construed as an all-stock transaction under a new legal entity incorporated in the Netherlands. The statutory seat of the new holding company would be Amsterdam, with dual headquarters in Frankfurt and New York. The shares of the new holding company will be listed and traded in Frankfurt, Paris and New York.
The business combination agreement is being entered into by and between:
- NYSE Euronext, a Delaware corporation;
- Deutsche Boerse, a company organised under the laws of Germany;
- Alpha Beta Netherlands Holding NV (HoldCo), a limited liability company organised under the law of the Netherlands; and
Pomme Merger Corporation (Merger Sub), a Delaware corporation and wholly owned subsidiary of HoldCo.
The agreement is governed by Dutch law, with the exception of the interpretation of the material adverse change clause and the fiduciary duties of the NYSE Euronext and Deutsche Boerse boards. HoldCo will issue shares in exchange for NYSE Euronext and Deutsche Boerse shares - HoldCo will make an exchange offer for shares in Deutsche Boerse against the issue of shares in HoldCo and Merger Sub will merge with and into NYSE Euronext, with NYSE Euronext surviving the merger. As consideration for the NYSE Euronext assets acquired by means of the merger, HoldCo will release newly issued shares to the NYSE Euronext shareholders.
As a consequence of this transaction structure, the parties to the transaction must take into account the applicable provisions of various laws and regulations, such as German take-over law, US securities laws, Delaware corporation law and Dutch contract and (mandatory) corporate law. HoldCo will prepare a prospectus for the issue of HoldCo shares in accordance with the provisions of the recently amended EU Prospectus Directive, as incorporated in Dutch securities law, and will further be subject to European competition approval procedures. This combination of applicable laws and regulations may lead to questions of interpretation and, in the worst case, conflicting provisions giving rise to compliance issues.
There are a number of possible reasons why the parties opted for a Dutch holding company making the offer and a business combination agreement governed by Dutch law. A choice for German or US law could be seen as an indication that one of the merging parties is the leading party, with the implicit conclusion that it concerns a take over rather than a merger. By opting for Dutch law, neutrality is guaranteed. Also, in light of the international structure of the new group, it may be relevant to have a clear understanding as to the tax aspects of the new group.
The Dutch tax authorities are known for their willingness to enter into an agreement with companies that avoid uncertainty and discussions afterwards. Furthermore, the Netherlands has a good reputation for the quality of its legal system and courts, such as the Enterprise Chamber, as well as its legal services industry. The concept of reasonableness and fairness under Dutch law will be one of the guiding principles for the future board of HoldCo should the proposed merger between NYSE Euronext and Deutsche Boerse succeed. This principle may set aside contractual provisions in case the strict interpretation of such provisions would be deemed unreasonable in light of all circumstances.
Recently, a combination of Nasdaq OMX and IntercontinentalExchange (ICE) launched a competing offer for NYSE Euronext. The offer represents a premium of approximately 19% over the price proposed by Deutsche Boerse. The offer would break up NYSE Euronext, with ICE purchasing NYSE Euronext's derivatives businesses and Nasdaq retaining NYSE Euronext's remaining businesses. The counter-offer creates the same situation as did the battle for ABN Amro Bank a few years ago - a higher price for shareholders in a break-up scenario or a lower price for shareholders by means of an offer consistent with the target's strategy that has the support of the target's board. On April 10 2011 the board of NYSE Euronext rejected the unsolicited Nasdaq/ICE offer and reaffirmed the business combination agreement. However, Nasdaq and ICE have not given up and will seek the support from some of the large shareholders of NYSE Euronext to put pressure on the board of NYSE Euronext.
It is impossible to predict the outcome of this battle. However, it is obvious that the board of NYSE Euronext faces a challenging period ahead, balancing the interests of shareholders, customers, employees and regulators within a complex legal and political environment. Leading exchanges operators are not created overnight.
For further information on this topic please contact Harm Uittien at Van Doorne by telephone (+31 20 6789 123), fax (+31 20 7954 589) or email ([email protected]).