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No yay, no pay

1 February 2012 By Antony Currie

Duncan Niederauer and Reto Francioni deserve a bit of a spanking for their failure to mate. Sure, the chief executives of NYSE Euronext and Deutsche Boerse, respectively, had a good financial case for putting the two exchanges together. They even had a credible argument for why the resulting 90 percent share of Europe’s exchange-traded derivatives market wouldn’t constitute a monopoly. But none of that matters now. They spent a year pursuing a transatlantic tie-up that European regulators never favored, and have now officially nixed.

It has been a costly endeavor for the two bourse operators, requiring oodles of cash to pay for legal, financial and political advice, not to mention extreme lobbying – none of which brought the desired outcome. The process also distracted management from focusing on running their respective businesses. And the concessions they offered to appease Brussels imply they never took its objections seriously enough. NYSE said it would offload Liffe’s European single-stock equity derivatives businesses, which are small and would do little to reduce the dominance the EU feared the combined bourse would have enjoyed.

Still, ousting the two architects of the deal would be too harsh a measure. Exchange bosses have displayed remarkable staying power in the face of politically tricky merger messes. Nasdaq’s Robert Greifeld is still in charge after last year adding a collapsed bid for NYSE to his rejection by the London Stock Exchange in 2006.

And shareholders did approve the deal last year despite the EU’s concerns. It’s easy to see why: the exchanges expected to cut costs worth some $4 billion to shareholders – and find revenue synergies, too. Nor was the deal as egregious as AT&T’s failed bid for T-Mobile USA, which cost the bidder $4 billion in break-up fees. Neither NYSE nor Deutsche Boerse expects to pay each other anything as a result of their deal collapsing.

But Niederauer and Francioni ought to take some form of punishment for their tin-eared pursuit of the impossible. Forfeiting any bonuses for 2011 should be top of the list. Niederauer pocketed $4.75 million and Francioni $2.6 million for 2010 on top of salaries of $1 million and $1.3 million respectively. Their boards should set the right example for their listed client companies by not paying for failure.


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