In the age of globalization, national borders are losing their meaning. Trade knows no nation, religion, and borders. Increasing profits and fulfilling the demands and needs of shareholders has become an objective of major importance.
This requires adapting to rapid changes and acting with flexibility in a strongly competitive environment. The world is changing and new developments appear every day. To survive, organizations need to come up with new ways of doing business, of adapting their strategy and of trying to stay in the game. Die or survive – this is the choice.
Mergers and acquisitions, especially mergers of equals, are a way of saving an organization from bankruptcy, creating competitive advantage, or dominating the market.
Recently, there has been a hotly debated topic in the world of global business: the merger of the New York Stock Exchange (NYSE) Euronext and Deutsche Börse.
This is the third attempt since 2008 of the Deutsche Börse to merge with the NYSE; it finally occurred.
The deal has had wide ranging repercussions in the U.S. and Germany. Although criticisms overlap in some ways, the Germans see greater advantages than the Americans.
In this commentary, I review some of the coverage from both the U.S. and the German press and try to clarify the German viewpoints, which it seems to me, are not very well understood in the U.S.
The merger from the viewpoint of the U.S.
The U.S. press has been outspoken in its criticism of the deal. The news headlines include either panic, skepticism, or anger.
On his corner of the CNBC website Feb. 10, Peter Morici announced the deal under the headline “German Takeover of New York Stock Exchange Is Bad News for the U.S. Economy”.
“Just Admit It. The Germans Are Taking Over the NYSE” and “Loss of the Big Board to Germans Is a Crime, but Who’s Guilty?” were headlines on the Wall Street Journal the week of Feb. 14.
Another Wall Street Journal headline asked, “What’s in a Name?” and answered with “New York Stock Exchange Could Lose Out in Merger: Sen. Schumer Presses Treasury Secretary,” referring to U.S. Sen. Charles E. Schumer of New York.
abcNews on Feb. 16 led with “Sen. Schumer Defends New York’s Name: Issue of American Economic Pride”
The articles focused on concerns that the New York Stock Exchange would fall into the hands of foreign concerns, resulting in the loss of a primary symbol of American capitalism.
Although both the head of New York Stock Exchange and Deutsche Börse declared that the deal represents a merger of equals, the U.S. press is not convinced, and reflects the anxiety that the superior position of the U.S. in global trading will be at risk.
Furthermore, some previous failed deals between U.S. and Germany contribute to this skepticism.
For example, Daimler-Benz AG merged with Chrysler Corp. in 1998 under name of DaimlerChrysler Motors Co. LLC, with its U.S. operations generally referred to as the “Chrysler Group”.
At that time, this deal produced high expectations due to its scale as a huge intercontinental merger. But after only nine years, in 2007, Daimler sold Chrysler to Cerberus Capital Management once the high expectations were crushed in one of the most expensive and least successful mergers in auto industry history.
The Merger from the viewpoint of Germans
Most German have a different and contrary opinion from the Americans about the merger of the two stock exchanges.
The discussions in Germany about the deal have mostly focused on the future success of the new organization against new and strong competitors.
In renowned newspapers and journals, such as Spiegel, Handelsblatt, Frankfurter Allgemeine Zeitung, Manager Magazin, etc., the deal is celebrated, implied as a “marriage,”“merger” or “fusion,” not as a “takeover.”
The German press mostly called it “a win-win situation” without either company becoming the dominant player. They also say that the merger is justified because of economic reasons.
Many months before the deal was consummated, Spiegel described the U.S. stock market as having lost its importance and attractiveness.
The publication pointed out that although there were more than 7,400 listed companies in the middle of the 1990s, the number has declined to 5,800 today.
Spiegel also reports that the U.S. stock markets become smaller from day to day, while the markets in Asia show an upward movement.
According to the publication, the transaction volume in Pacific-Asia increased from 8,865 to 20,901 between 1999 and 2009.
In just the Hong Kong market, the number of the listed organizations has grown from 708 to 1,319.
The loss of power in the U.S. stock market has two main reasons: strict rules of the Sarbanes–Oxley Law since 2002 and the financial crisis.
For example, although the number of listed companies at the NYSE in 1998 was 3,114, this number reduced to 2,426 organizations by October 2010 because of the financial crisis.
In addition to the woes of the U.S. stock market, global developments push forward international mergers of the stock markets.
Electronic trade platforms such as Bats and Chi-X as well as over-the-counter platforms decrease the market shares of the traditional stock market.
Therefore, a merger is the only way to survive against these threats, as it will sink costs and create domination in the market.
According to Bloomberg LP, the total value of international stock market’s mergers is approximately $1 billion since January 2000.
For the Top-Stock Exchange Mergers Since 2000, go here
Regarding the realities of the world stock markets, Germans have a much more positive viewpoint than Americans in terms of the outputs of the merger between NYSE and Deutsche Börse.
The merger will create a capital value of about $26 billion and 4.1 billion euros in revenue. The cost savings would be approximately $410 million through the fusion.
Moreover, the organization will be dominate in more than 16 important stock markets including Frankfurt, New York, Paris, Amsterdam, London, Chicago, Zürich, Brussels and Lisbon as well as hire more than 6,400 personnel.
The corporation will be the largest derivatives, stock and options exchange worldwide and supplant existing market leaders such as CME and CBOE (Chicago), KRX (Korea) and Nasdaq.
Since Deutsche Börse will have 60 percent share ownership, the U.S. press and shareholders are complaining about the loss of identity and the minority of the U.S. shares within the new organization.
The German response to these assumptions has been as follows:
First, the NYSE on its own has no future and will only survive through a merger.
Second, the U.S. side keeps an important decision-making authority because Duncan Niederauer, who is the current chairman of the NYSE Euronext, will keep his job as CEO of the new organization.
Third, for many years, Deutsche Börse has not been a solely German-owned organization. Approximately two thirds of the shares belong to investors from U.S. (32 percent) and Great Britain (16 percent).
Therefore, American shareholders will hold the majority of shares after the merger. The distribution of shareholders after the deal is to be as follows: 56 percent U.S., 11 percent Germany, 11 percent Great Britain, and 22 percent others.
The German-side, focused on future success, has assumed that the organizations gain more profits, market share and power together than they would produce operating separately.
It is curious for Wall Street to focus on the new name of the merger while neglecting the potential for future success and power.
However, the emotional reaction of the Americans has been predictable. The New York Stock Exchange is one of the most visible landmarks of the United States’ economic leadership throughout the world.
The shareholders and even non-shareholders have emotional ties to this organization and feel proud of it.
It is obvious why the public shows an inner resistance and places importance on the identity of the new organization rather than to focus on the positive outcomes.
Despite the Germans’ positive outlook about the merger, there are some concerns about its future impact in Germany.
First, because of the majority of shares being owned by Americans (56 percent), American shareholders may have too much leverage in Germany.
Second, some people argue that Frankfurt will lose its importance and the historical German stock exchange will disappear.
This anxiety appears because of two planned actions.
First, the existing trade platform Xetra will be replaced by a new system to secure a uniform IT-infrastructure and the IT of the new organization will be shifted from Frankfurt to Paris.
Second, the new manager will operate out of New York not Frankfurt.
These concerns turn to speculations because of the past experience involving the 2006 merger of Euronext based in the Netherlands and the New York Stock Exchange.
As with the merger of the NYSE and Deutsche Börse, the deal was called a merger of equals. But later the American-side took over its management.
If the negative critiques of both sides are closely examined, one obvious issue stands in the forefront: negative assumptions of both Americans and Germans are similar.
The main criticism is that the merger will lead to a loss of identity or control by the nation. They have the same anxiety that it isn’t a merger of equals but one organization will eventually emerge as more dominant.
Surprisingly, the skeptics are concerned because of prior experiences of major mergers.
While Americans are focused on the failed deal between Daimler AG and Chrysler Group, the Germans’ fears rest on the experience of the New York Stock Exchange and Euronext.
In short, people from different cultures share the same feelings and despite globalization ethnocentric feelings still dominate.
Regardless, the merger will take place. Therefore, the emotional approaches should be put aside and it should be focused on more important questions to secure the success of the fusion:
Competitiveness: As German and U.S. publications are in some ways in the same camp, the competitiveness of NYSE has already decreased because of the strict rules of Sarbanes Oxley Act. How will NYSE and Deutsche Börse together overcome this shortcoming, if there is no possibility of withdrawing from Sarbanes Oxley?
Customer based: Regarding the past merger experiences between U.S. and German businesses, there are a number of anxieties about the future of this deal. To reach the “world leader”-aim the shareholder should invest in the organization. However, the first reaction of the shareholders was to sell their shares. So, the shares of the Deutsche Börse decreased about 1.7 percent to 60.27 euros, whereas NYSE lost more over 3 percent to $38.05. How will the stakeholders be convinced to reach to the “world leader”-aim in terms that this new organization has a long future in the business and will not separate?
Company based: The regulation of the governing law seems to be complex because of the different juridical structures regarding U.S. and E.U. law. How will the NYSE and Deutsche Börse be regulated and integrated without victimizing the stakeholders?
Dr. Ilke Kardes is a visiting scholar at Georgia State University‘s Center for International Business Education and Research, which is located at the J. Mack Robinson College of Business. She is Turkish and earned a master’s of science degree and a doctorate in marketing. Her education and academic experience as a lecturer have been at the German business program of Marmara University in Istanbul, Turkey. She is fluent in German in addition to English. She may be reached by calling Yiandria Boswell at (404) 413-7287 or send an email to yboswell@gsu.edu