The U.S. Department of Justice announced today that the NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. have abandoned their joint bid to acquire NYSE Euronext, following a decision by the U.S. DoJ to block the transaction.
In making the announcement, Christine Varney, Assistant Attorney General in charge of the DoJ’s Antitrust Division said:
“The companies’ decision to abandon their bid for NYSE Euronext eliminates the competitive concerns developed during our investigation. … The acquisition would have removed incentives for competitive pricing, high quality of service, and innovation in the listing, trading and data services these exchange operators provide to the investing public and to new and established companies that need access to U.S. stock markets.”
Like Canada, transactions in the U.S. exceeding certain monetary thresholds are required to be pre-notified and obtain regulatory approval. In Canada, the pre-merger notification provisions of the Competition Act require both parties to specified types of transactions that exceed the statutory monetary thresholds under the Act to file pre-merger notification filings with the Competition Bureau.
Substantive Competition/Antitrust Concerns
It appears from the DoJ’s announcement that its concerns were based on overlap in several relevant markets, including for corporate stock listing services in the United States. According to the U.S. DoJ, the NYSE and NASDAQ are “effectively the only companies providing corporate stock listing services in the United States.”
In this regard, NYSE owns the New York Stock Exchange, the oldest stock exchange in the United States, while NASDAQ operates the NASDAQ Stock Market, the NASDAQ OMX BX (previously the Boston Stock Market) and the NASDAQ OMX PSX (previously the Philadelphia Stock Exchange).
Other relevant markets that appear to have been a concern for the DoJ included stock auction services, used at the open and close of trading and periodically during market imbalances, and trade reporting facilities, used for the reporting of stock trades occurring outside of a stock exchange, which according to the DoJ would have given the merged entity a monopoly post-merger (i.e., the NYSE and NASDAQ are currently the only two entities competing to collect this data).
For the DoJ news release see: Nasdaq OMX Group Inc. and IntercontinentalExchange Inc. Abandon Their Proposed Acquisition of NYSE Euronext After Justice Department Threatens Lawsuit.
For the Assistant Attorney General’s remarks see Remarks of Assistant Attorney General Christine Varney.
Maple Group Launches Rival Bid for TMX Group Inc.
The decision by NASDAQ OMX and IntercontinentalExchange to abandon their bid for the NYSE comes at the same time as a second rival bid has been launched by Maple Group Acquisition Corp. to acquire the TMX Group Inc. (see: TSX Will Prosper, Canadian Bidders Say). The London Stock Exchange Group PLC had already proposed a merger with the TMX worth about $40 a share.
While spokespersons for the rival bidder, a consortium of nine banks and pension funds, have been downplaying the regulatory approvals required for the bid, and in particular merger clearance, it is not clear that sufficient existing competition will remain to avoid behavioural or structural merger remedies being imposed if the rival bid is ultimately successful.
Existing remaining competition is both a substantive factor for merger review under the Competition Act and a key factor for the Competition Bureau in its review of proposed mergers (see for example the Bureau’s Merger Enforcement Guidelines).
In this regard, potential overlap includes the Alpha Group (a new trading system that may be seen as competing and overlapping with the TMX) and CDS Inc. (that handles the clearing of share trades).
On the other hand, the reality is that, unlike some other jurisdictions, fully contested mergers are rare in Canada with most substantive issues being resolved by way of negotiated settlements (i.e., remedies imposed by the merging parties) (see e.g., the Competition Bureau’s Information Bulletin on Merger Remedies).
Potential remedies in this case could include behavioural remedies partitioning existing bank-owned competing exchange facilities from the TMX or the divestiture of some existing bank-owned exchange assets.
One interesting aspect that will remain to be seen is whether existing bank-owned trading assets are seen as merely an incremental addition to the TMX share or whether any such assets are seen as a sufficiently vigorous new entrant as to pose more serious competition law concerns for the Bureau.
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