VZCZCXRO2383
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHFR #7892/01 3560926
ZNR UUUUU ZZH
R 220926Z DEC 06
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 3925
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUCNMEM/EU MEMBER STATES

UNCLAS SECTION 01 OF 02 PARIS 007892 
 
SIPDIS 
 
SIPDIS 
 
PASS FEDERAL RESERVE 
PASS CEA 
STATE FOR EB and EUR/WE 
TREASURY FOR DO/IM 
TREASURY ALSO FOR DO/IMB AND DO/E WDINKELACKER 
USDOC FOR 4212/MAC/EUR/OEURA 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV FR
SUBJECT: SHAREHOLDERS APPROVE NYSE-EURONEXT MERGER 
 
Ref:  Paris 3447 
 
¶1. SUMMARY:  As expected, NYSE and Euronext shareholders voted in 
favor of a merger, clearing the most significant remaining hurdle to 
creating a transatlantic stock exchange.  Opposition to the merger 
largely crumbled after NYSE's surging stock price made its offer too 
attractive to refuse, and after NYSE made concessions on governance 
rules and gave assurances that U.S. regulations, notably the 
Sarbanes-Oxley law, would not spill over onto European firms.  END 
SUMMARY. 
 
Shareholders Vote to Merge 
-------------------------- 
¶2.  Shareholders of Euronext, the Paris-based federation of European 
stock exchanges, approved a merger with the New York Stock Exchange 
(NYSE) by a margin of 98.2 percent on December 19.  NYSE 
shareholders voted in favor of the merger by a 99.7 percent margin 
on December 20.  The margin of success reflects the high premium 
NYSE will pay to Euronext shareholders, as well as the value 
shareholders attached to guarantees NYSE provided to address 
European concerns about governance of the new firm. 
 
¶3.  Early opponents to the merger had included French President 
Chirac, who had commented that he favored a "European solution," in 
reference to an earlier competing bid from the Frankfurt-based 
Deutsche Borse (DB).  DB, however, eventually dropped its bid after 
the rising price of NYSE shares put its offer out of reach. 
 
Governance Issues 
----------------- 
¶4. Bowing to pressure from Finance Minister Thierry Breton and the 
influential Parisian financial lobby Europlace, NYSE agreed to 
modify the composition of its proposed governing board.  Under the 
initial NYSE offer, Europeans would have been outnumbered by eleven 
to nine on the board of directors.  Once NYSE/Euronext obtains final 
regulatory approvals, the new NYSE/Euronext board should have eleven 
American citizens including the current director of the NYSE, and 
eleven Europeans including nine members of the Euronext supervisory 
board and Euronext CEO Jean-Francois Theodore.  The NYSE/Euronext 
council and the committee for nomination and governance will have 
the power to change parity rules, but only by a two-third majority 
vote. 
 
Extraterritoriality Laid to Rest 
-------------------------------- 
¶5.  Because of concerns in Europe that strict U.S. accounting and 
governance rules might be imposed on Europe, NYSE drafted a special 
arrangement consisting of two stand-by structures, one involving a 
Dutch foundation and one involving a Delaware trust.  The Dutch 
foundation can take action to mitigate any change in U.S law that 
could have extraterritorial impact on Europe.  Likewise, the 
Delaware trust can take action to mitigate any change in European 
law that could have extraterritorial impact in the U.S. 
 
Paris Europlace Gives its Support to NYSE Euronext 
--------------------------------------------- ----- 
¶6.  Paris Europlace commissioned a French capital markets lawyer to 
analyze the efficiency of the Dutch foundation scheme, and decided 
there was little risk of US regulations being imposed on European 
companies listed on Euronext.  On the eve of the shareholder vote, 
Paris Europlace withdrew its objections to the merger, saying the 
proposed governance structure of NYSE/Euronext, and assurances from 
European regulators, addressed most of its concerns. 
 
European Regulators Approve the Merger 
-------------------------------------- 
¶7.  Euronext regulators announced on December 5 they had "no intent 
to object to the NYSE/Euronext merger; the final decision by a 
committee of Euronext regulators will depend on certain assurances 
and commitments in specific areas as well an agreement on final 
agreements."  Euronext regulators said they are working with the 
U.S. Securities and Exchange Commission (SEC) on a memorandum of 
understanding for coordinated regulation and supervision of the 
NYSE- Euronext group, to be signed when the merger receives required 
approvals and the merger offer is unconditional. 
 
Finance Minister Says Dialogue Must Continue 
-------------------------------------------- 
¶8.  In a November 27 Euromoney Conference in Paris, French Finance 
Minister Thierry Breton proclaimed that the NYSE-Euronext plan had 
been "modified sensibly."  He urged Euronext to stay in contact with 
the users of its trading platform to ensure that the transatlantic 
alliance fills their needs. 
 
 
PARIS 00007892  002 OF 002 
 
 
Auditors Put High Value on Merger 
--------------------------------- 
¶9.  The bottom line for most shareholders, of course, turned out to 
be the share and cash offer from NYSE.  The independent expert 
selected by Euronext concluded that the offer made to shareholders 
is "equitable from a financial point of view."  Based on an estimate 
of future cash flows, cash premiums would amount to 14.5-19.7 
percent of Euronext's share price. 
 
Some French Politicians Still Grumbling 
--------------------------------------- 
¶10.  Socialist politicians, including Arnaud de Montebourg, a close 
adviser to presidential candidate Segolene Royal, described the 
NYSE/Euronext merger as "a Trojan Horse for American legal 
imperialism."  Jean-Pierre Chevenement, the head of the leftist 
"Republican and Citizen Movement" accused the government to have 
been "scandalously absent," and "not to have tried to impede" the 
merger between the NYSE and Euronext, which he deemed as "an 
absorption."  Center-right UDF head of the Senate Finance Commission 
Jean Arthuis declared "he was shocked" by the merger, saying it was 
a failure for Europe, and "we fought to get the euro, and now the 
financial community lets New York take control of Euronext." 
 
Next Steps in the NYSE/Euronext Merger 
-------------------------------------- 
¶11.  The merger still is subject to approval by the Dutch finance 
minister, expected in the second half of January.  The NYSE/Euronext 
merger also has to clear various other European regulatory 
authorities.  NYSE and Euronext planned to complete the deal in the 
first quarter of 2007. 
 
NYSE/Euronext Predicts Lower Trading Fees 
------------------------------------------ 
¶12.  The alliance will provide international exposure and the 
opportunity to become the euro zone's biggest primary market. 
NYSE/Euronext will have a market capitalization of about 29 billion 
dollars, putting it ahead of Chicago Mercantile Exchange/CBOT, the 
global derivative exchange valued at about 25 billion dollars. 
According to Euronext, the merger will allow a reduction of trading 
fees by between 10 and 15 percent after two or three years.  In 
reducing its fees, NYSE/Euronext hopes to attract more investors, 
including large investment banks. 
 
Comment 
------- 
¶13.  This merger comes amid a rush for consolidation among global 
exchange operators.  The Parisian financial community hopes to 
develop its role as a global financial center. 
 
HOFMANN#