3:26 AM
By Michael Smith and Jonathan Spicer
SYDNEY/NEW YORK | Tue Feb 15, 2011 4:27am EST
SYDNEY/NEW YORK (Reuters) - Deutsche Boerse and NYSE Euronext are expected to announce a deal to create the world's largest exchange operator later on Tuesday, but set aside thorny political issues that pose a challenge to its successful completion.
Highlighting how political concerns are weighing on a wave of consolidation sweeping the industry, Singapore Exchange tweaked its $7.9 billion bid for rival ASX to allow more Australian directors onto a combined board as it seeks to win the support of Australian lawmakers wary of ceding control of the local exchange.
Nationalism is one of the biggest hurdles to the industry mergers as exchanges are often seen as symbols of national pride and important to attracting business and capital. The deals, including a bid by the London Stock Exchange to take over Toronto Stock Exchange operator TMX Group, face intense scrutiny from regulators and politicians around the world.
A number of key details in the Deutsche Boerse and NYSE Euronext merger have been hammered out, sources said. A definitive agreement is expected to be announced on Tuesday, one source said.
But several difficult issues have yet to be addressed, which is likely to add to concerns being raised on both sides of the Atlantic.
Politics is also seen as the driver behind the revised SGX plan that gives an equal number of board seats to Australians and Singaporeans in the combined entity compared to less than half for the ASX under the earlier offer.
The bourses said in a joint statement on Tuesday there would also be three "international" directors although they would initially come from the SGX board. The size of the board has been whittled down from 15 to 13.
"All the resistance to the deal has been political. The steps taken today should address some of those political issues," said Mark Nathan, portfolio manager at Arnhem Investments. "It clearly carves out and maintains some sovereignty within Australia, and there should be a lot less resistance to the deal in its new form."
There is no change to the value of the SGX offer and ASX shareholders will still hold about 36 percent of the company under the new proposal.
WHO NEXT?
Similar political and regulatory hurdles may threaten the Deutsche Boerse-NYSE Euronext tie-up.
"The biggest question mark in general is obviously the European political and regulatory landscape coming out of this," one source said.
The Frankfurt- and New York-based companies were center stage in the merger frenzy that erupted last week and heated up on Monday as Brazil's BM&FBovespa said it was eyeing its own prospects and as traders buzzed that CME Group could jump into the fray.
Fox Business Network reported that CME Group, currently the world's top derivatives exchange group, may make a hostile bid for NYSE Euronext, citing bankers.
A spokesman for Chicago-based CME declined to comment. CME officials have been guiding investors away from expectations that the company would do a merger deal.
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