The largest futures exchange in the world, CME Group Inc., has reportedly approached Deutsche Boerse AG so that it starts the initial negotiation regarding a possible merger. At the end of 2012, CME contacted Deutsche Boerse, the Frankfurt based exchange, even before IntercontinentalExchange announced its decision to buy NYSE Euronext. Incidentally, Deutsche made an attempt to take over NYSE Euronext, but the same was blocked by certain European regulators. As reason of blockage, regulators stated that the merger will harm competition in clearing and derivatives. According to people who are familiar with the situation, Deutsche is currently a bit hesitant about entering into negotiations with CME. Officially, Deutsche has denied any talks on possible merger deal.
Incidentally, a merger between CME and Deutsche will ensure that the biggest futures exchanges in US and European markets combine with each other. In 2013, the shares of CME have surged ahead by 15%, thereby making its market capitalization $19.4 million. On the other hand, Deutsche Boerse rallied 4% on today, helping its share price to reach 48.56 Euros. Today’s gain marks Deutsche’s biggest surge since last September and this brings the total capitalization of Deutsche to 9.37 million Euros.
According to an Analyst of KBW Inc., Niamh Alexander, the numbers look very compelling at this moment. As stated by Niamh, futures in rates, FX, equities and commodities are dominated by CME in US; whereas, Deutsche has the supremacy over similar products in Europe. So, if this deal takes place, probably investors will be positive about the outcome.
So far, the officials of Deutsche and CME have met only once in this year and no decision on the possible terms have been made. No offer has been filed either and it’s still a matter of negotiation whether formal talks should actually start or not.
In the last decade, just like IntercontinentalExchange, CME has expanded through deals as well. It has already acquired New York Mercantile Exchange and Chicago Board of Trade. Last year, however, its attempt to buy the London Metal Exchange was not successful.
The Exchange Analyst of RBC Capital Markets, Peter Lenardos believes that if the merger deal is pursued ultimately, it may take as much as 12 months to complete the same. Peter added further that the risks for the deal are mainly based on antitrust and political issues.