Under the proposed plan, Deutsche Boerse will buy NYSE Euronext in a 60:40 arrangement, and take 10 of 17 board seats, a nod to Deutsche Boerse's greater market value. Frankfurt will remain the hub for derivatives trading, market data and analytics, while New York will head up cash trading and listing, under a so-called "dual headquarter" concept. Francioni will be chairman while Niederauer will be CEO.
For the first six years the two key positions will not work from the same location, Deutsche Boerse said; Francioni will have the power to call board meetings, set the agenda and be responsible for initiating and developing overall group strategy.
But according to the SEC filing, New York could over time emerge as the main centre for decision-making. As part of longer-term plans, the number of directors -- excluding the CEO and chairman -- will be cut to 10 from 15 after the initial board term; and a ratio whereby Deutsche Boerse and NYSE Euronext effectively have a "quota" will go, the 8-K filing shows.
Furthermore, Francioni's powers will be crimped. After an initial term, the chairman will become a non-executive director, and the "responsibilities and authorities" that go with the position, "will terminate", says the filing, made on Feb. 15.
Even the link between the chairman's office and Frankfurt -- an extremely sensitive point for politicians in the region of Hesse which awards the licence for the exchange -- has not been set in stone.
Meanwhile, New York has ensured that other key areas of responsibility will be located in the United States, with corporate development, M&A, human resources, public relations and branding all based there.
Even investor relations and controlling/budget will have their "primary location" in New York, the filing shows, despite the fact that the Chief Financial Officer is officially being appointed by Frankfurt.
Uto Baader, CEO and founder of German investment bank Baader Bank, a client of Deutche Boerse, says he expects Frankfurt's role to quickly become like Amsterdam and Paris are "within NYSE-Euronext... There is not much left in Amsterdam and Paris."
Little wonder that the merger project gives the NYSE the code name "Alpha", while Deutsche Boerse takes "Beta". As if to underline the NYSE's dominance, Niederauer eagerly intercepted questions for his Swiss counterpart at the press conference to unveil the deal. "So, Reto, if it's all right with you we will take the next two questions from over here," he said at one point.
WHO'S THE DADDY?
Niederauer, who spent 22 years as a Goldman Sachs banker and was co-head of Equities Division Execution Services, has insisted in the past that he and his company would never be the junior partner in a tie-up with anyone. "I don't think we can be acquired," Niederauer said at the Reuters Exchanges and Trading Summit in New York in 2009, after rumours of a tie-up with Deutsche Boerse first arose. "We're either a merger partner or an acquirer."
By contrast, Francioni was installed at Deutsche Boerse after hedge funds ousted Seifert in a disagreement over strategy. The Swiss is uncomfortable in large groups and avoids the limelight, three people who have worked with him say. One of his first acts upon getting the top job as CEO was to install a glass cubicle for himself in what had been an open-plan office.
With his contract expiring in 2013 and impairments on the ISE amounting to almost half a billion euros, Francioni needed to come up with a new vision for the future and was ready to negotiate, according to bankers involved in the deal. Niederauer was also under pressure. Besides losing market share, NYSE Euronext wanted to add a lucrative derivatives business to its portfolio.
The Euronext platform, which includes the Amsterdam, Brussels, Paris, and Lisbon exchanges, has seen its market share of Euronext stocks dwindle to 65.5 percent of overall trading from 97.5 percent in early 2008, ThomsonReuters data shows. It's a similar story in the United States, where the NYSE's share of stock trades has dropped to 33.9 percent from 53.1 percent in January 2008, according to NYSE figures.
FORMIDABLE HURDLES
Francioni first talked to Niederauer about a possible merger in December 2008. The project, known then as "Rudolf", didn't get far until the euro weakened relative to the dollar, narrowing the gap in market capitalisation between the two exchanges and making it easier for Niederauer to sell the deal as a "merger of equals" at home, according to bankers negotiating the deal.
Initial due diligence started four to five weeks ago, bankers say. When both side's core teams were ready to meet in person, they agreed to a Feb. 1 encounter on "neutral ground" in Amsterdam, where executives from NYSE Euronext were to hold a long-planned meeting in their office building between Amsterdam's main train station and the red light district. The handful of executives got on well as they discussed the emerging competitive landscape, according to people who are familiar with the matter.
Francioni and Niederauer worked on the outlines of the deal with lead lawyers from Linklaters, who were working for Deutsche Boerse, and from Wachtell Lipton Rosen & Katz, for NYSE.
After that meeting, due diligence was intensified, a banker familiar with the negotiations said. Francioni was able to use a deal template that had been thrashed out in earlier merger attempts with Euronext. Back then he and his predecessor had suggested the idea of an Amsterdam-based holding company to regulators in Euronext's partner capitals. Frankfurt wanted to avoid a parent company based in New York, because this could give U.S. regulators direct access to the European operations, which could in turn force European companies to submit to U.S. listing rules.
Both parties planned to unveil a deal on Feb. 15, the day of Deutsche Boerse earnings. That way they could brief members of Boerse's supervisory board without having to call an extraordinary supervisory board meeting, which would raise suspicions and increase the risk of a leak.
But on Feb. 9 news of the merger talks began to swirl in Frankfurt and advisers from the two exchanges activated a so-called "leak plan" to accelerate negotiations. It was a delicate matter, because some key personalities in the regulatory sphere had not been given any signal a deal was brewing. For legal reasons, the market needed to be informed of the preliminary merger outline as soon as possible. Only then could Francioni and Niederauer call regulators and politicians to inform them.
Rather than breaking off talks, executives decided "the finish line was in sight" and pressed ahead, bankers involved in the negotiations said. Important "politically sensitive" issues such as job cuts or which technology platform to use, would be shelved until later. Separate working groups for IT, legal, finance and business stepped up efforts to reach agreement and began working in parallel on trans-Atlantic daily conference calls, starting after midday central European time.
The teams from Germany were often impatient with their U.S.-based counterparts, eager for definitive answers and detailed procedures. In New York, fears of German domination also linger.
When Europe-based executives pushed for the new company to be named "DB NYSE Group," it prompted a political backlash in the United States. After news of the name leaked, U.S. Senator Charles E. Schumer insisted NYSE should get top billing in any new exchange company's name.
Even after Deutsche Boerse and NYSE issued a joint statement saying a name had not been decided, Schumer said, "NYSE is one of the most pre-eminent brands in the financial industry, and there is no reason it shouldn't come first in the new exchange's name. "If Deutsche Boerse pushes any alternative name, it would be an indication that they are not viewing this deal as a merger of equals and that could have negative consequences with regard to future decisions on the merger's implementation."
While the loss of prestige will hurt Frankfurt, the exchange's dominance in Germany is only recent, points out banker Baader: "Before, the landscape was more fragmented with smaller exchanges such as in Munich, Stuttgart and Duesseldorf." The deal still faces formidable hurdles, particularly anti-trust concerns. But as a keen fly-fisherman, Francioni understands the subtle art of casting and the importance of patience. He may finally have landed his big one. (With reporting by Jonathan Spicer in New York, Philipp Halstrick, Arno Schuetze, Ludwig Burger, Harro Ten Wolde, and Anika Ross in Frankfurt; editing by Simon Robinson and Sara Ledwith)